A Fresh Look at the Process of Nonprofit Budgeting

by jhilley on March 4, 2013

I am pleased to re-post David Maddox’s blog article:  “Budgeting as an Act of Inspiration and an Act of Commitment.”   David Maddox’ blog article was was originally posted on February 25, 2013 by CatapultERP and is being re-posted here with their permission.  David, principal of RPM Associates, is part of the MyGamePlan.org stable of consultants.  A sought after consultant on budgeting and financial management, David was recently asked by Elliot Fishman and the good folks at Catapult ERP in Vancouver, B.C. to be a guest blogger.  Catapult ERP is a top choice for SMBs and non-profits for implementation, consulting and managed services related to Microsoft Dynamics ERP solutions.  David offers a fresh perspective on the budgeting process, looking through the lenses of possibility and accountability instead of through the lens of compliance  as it is so often the case by nonprofit management and boards.

Here is his blog:

“People acknowledge, grudgingly, the need to create a budget. After all, what proper organization does not tell its board what money will come in next year and get their OK to spend it? The temptation may be to plod through it as an act of pure formal compliance, but that misses the point.

The budget process truly starts by summoning the imagination. Very simply, you have to picture what could happen next year. What you might be able to do and what might happen. Whether you think your service levels will increase next year. Whether you will do anything to improve your service.  But also, what could go wrong? Are there risks lurking out there you need to consider, something more immediate than a cataclysmic asteroid impact?

All of this potential translates into dollars and cents. New clients might bring new revenue, but also new costs to serve them. Improved service might do the same. If one of your funders shifts priorities, the grant you counted on every year could evaporate and leave a hole in the budget—but maybe you can take (and fund) some actions to avoid or mitigate that.

You have to be prepared to imagine the best and worst that could happen, to picture the shape of the upside and the downside throughout your organization, and therefore throughout your budget. This requires openness, but openness on several levels. You can’t be afraid to think big, you can’t sweep challenges under the rug, and you also have to be willing to ground your ideas in reality. If you picture getting a grant to fund a new program, what success rate have you had in winning that similar funding for comparable programs? You may fear that improved economic conditions will make your salaries uncompetitive, but how much attrition do you really have?

Once you go through an open and rigorous process of imagining your organization in the next year (or more), you decide what you can most comfortably accept as “likely.” You commit to that conclusion by putting it in the form of budget numbers, asking your board to sign off on them, and working in good faith to reach them through the year. A budget is a compact—between board and staff, between management and staff, between the programs themselves. “We believe you can achieve what we’ve documented here. We believe the underlying assumptions. We will stand by each other to achieve this together…”   Click here to read the remainder of David’s blog…

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