The Dynamic Budgeting Process
The budgeting process is part of the management of a nonprofit that very few people are enthusiastic about – and that includes the CEO, the CFO, the staff, and many of the members of the board. Often lay people and staff alike perceive the experience as tedious, detailed, and sometimes dispiriting because the focus is generally on the agency’s cash flow problems and anticipated shortfalls in available financial resources.
However, there is another, more positive way of looking at a budgeting process that fully integrates the efforts of the professional staff and the volunteer leadership involved in the board and the relevant board committees. This way of creating and reviewing a nonprofit’s budget not only can produce a realistic budget but also can strengthen the agency’s operations.
The first step is to structure the board of directors so that there is a system of check and balances that enables the volunteer leadership not only to review the existing budget but also to take responsibility for financial planning. This can be done by forming an executive committee made up of the officers and the chairs of the standing committees, such as finance, personnel, program, and financial resource development, among others, that oversee the key functions of the agency affected by the annual budget.
Each of the committees should have a clearly defined purpose and an understanding of its specific function in relation to the organization and the board of directors. For example, the Finance Committee is not only responsible for building the annual budget, or in some cases a multi-year budget, but also has the task of reviewing actual income and expenditures in comparison to the budgeted figures in order to understand and take responsibility for the financial status of the organization.
However, the Finance Committee cannot function alone; it needs input from the other committees that deal with the agency’s functions that have budgetary implications. To illustrate the Finance Committee’s relationship to the other standing committees, let us look at the example of a Jewish Community Center. The JCC Program Committee decides what services it will offer, while considering those programs’ anticipated costs. Of course, there are other costs not directly related to personnel, such as materials, that have to also be considered. The programs may also generate income to offset the expenses. The Program Committee gives this information to the Finance Committee, which incorporates it into the relevant lines in the budget.
Based on the Program Committee’s recommendations, the board of directors approves a new Jewish identity program, and then the Personnel Committee gets involved. It reviews the staffing implications of the proposed program, examining whether existing staff can handle its implementation or whether additional professional expertise has to be engaged. The Personnel Committee comes up with a budget for the staffing costs.
Once the anticipated income and costs are known to the agency, they can be shared with the Financial Resource Development Committee whose function is to decide how and when the needed funds will be secured. They may decide to approach specific donors or apply for a foundation grant to fund the new program staff.
Throughout this process the voluntary leadership and the professional staff are working together to clarify the contours of the needed program, who will provide the service, what are its financial implications, and how will the funds be secured. By working together, the nonprofit’s professional and volunteer leaders are actually strengthening the agency. The discussions that lead to the decision to establish and implement the new program knit the organization’s resources together, support the involvement of the leadership, and reconfirm their investment in the agency.
Although this discussion focuses on the creation of a new program, the same process applies both to the monthly review of the agency’s income and expenses and the annual review of the total budget. Ideally, the Finance Committee’s discussion of budgetary issues, presented in monthly reports to the board, stimulates the leadership to look at the broader issues facing the organization. It is hoped that, in reviewing monthly committee reports, the board not only discusses the immediate issues but also asks the relevant committees to think about their implications for the coming years.
When the agency board owns the budgetary process, there is a greater likelihood that its members will understand their responsibility for the agency’s financial sustainability. Conversely, the further removed they are from the details of the cash flow issues, the less they will acknowledge the need for their own involvement. Thus, to ensure that the board is fully committed to fundraising, we need to work to educate them not only about the nonprofit’s desire to meet community needs but also its fiscal reality.
Yet budgetary discussions need to be about more than facts and figures. It is important to involve those who determine the organization’s policies and represent the social sanction of the community in the dynamics of the budgeting process. By becoming knowledgeable about the budget and the organization’s needs, they become more invested in the agency and more committed to its financial sustainability.
Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program and has a consulting firm focused on strengthening nonprofit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.