Monday, January 2, 2012

Navigating Nonprofit Budgets

Do your eyes glass over when fiscal reports are reviewed? Do the numbers seem impenetrable? Are you afraid to ask questions for fear of looking stupid? You are not alone; it's a common condition for nonprofit board and staff members who are much more comfortable discussing programs than budgets. Yet it is your professional obligation as staff - and your legal responsibility as a board member - to exercise prudent financial oversight of your nonprofit organization.

Here are some basic but important questions you should be asking about your agency's budget:

  • How does it compare to last year? Look for significant changes in both revenue and expenses (either up or down). Find out whether these changes are situational, or indicative of trends for the future.
  • Does it match up with your current projected budget? Check to see if you are meeting your targets and if not, ask why.
  • Are revenue projections realistic? You need to know whether the revenue indicated in your budget represents funds already committed, funds pending, or pie-in-the-sky hopefulness.
  • Have you budgeted for facility and/or technology maintenance and upgrade? It is essential to plan for ongoing maintenance and upgrade for both technology (computers, phones, copy machines, websites) and facility - or you can be hit with big unexpected expenses.
  • Are you facing any significant changes in either revenue or expense within the next 1-3 years? Do you have any time-limited grants that are providing basic funding for core programs, operating expenses, or staff? Will any long-time staff be leaving in the near future? Don't wait until the last minute to plan and budget for big transitions.
  • Are salaries and benefits in line with similar organizations in your area? If they are too high, funders and donors will be unhappy. If they are too low, you may have difficulty maintaining competent staff, and you could be faced with significant upgrade costs when there is a staff turnover. Take the time to do your research; the Northern California Nonprofit Compensation and Benefit Survey is a great resource:
  • Are your fundraisers really raising funds? Too often, nonprofits fail to do accurate accounting of annual fundraisers. Don't hang onto a long-time fundraising event out of either nostalgia or inertia. Look at a detailed budget for each fundraiser that includes costs for staff time and facility expenses as well as direct expenses.

Make sure that your agency fiscal reports are presented transparently, in layman's language that everyone can understand. This should include a narrative report as well as spread sheets that include the most recently completed fiscal year, a current to-date accounting, and the current year's projected budget. Find a format that works for you and your board, insist on sufficient time ask all the questions you need answered, and don't be afraid to ask them.

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