Mel and Pearl Shaw of Saad&Shaw
Do you, as a nonprofit board member, want to take a nap when it’s time to talk about the budget? Maybe you have an important call to make? We urge you to change your ways! We’ve been talking with John Bazzanella, COO of Tennessee Nonprofit Network, about budgeting and critical management information that is “hidden in plain sight.” As a board member you have to understand how your nonprofit’s budget is constructed, and how different future scenarios can impact programming and sustainability. Understanding anticipated expenses and revenue can guide the process of setting and adjusting fundraising goals. While the budget will communicate revenue projections required to meet anticipated expenses, you need to remember that fundraising goals are not the same thing as revenue projections. We believe that fundraising goals need to be much higher than anticipated revenue, because not every qualified prospect will actually give, or give at the level you anticipate. Fundraising needs to be proactive and incorporate strategies and goals to help ensure that agreed upon revenue goals are met.
What is the best format to use when presenting budget information?
Summaries or condensed presentations can be useful for the introduction of the initial budget and to prioritize key information. I wouldn’t recommend looking only at expenses or only at revenue – an important benefit of a budget is seeing the relationship between expenses and revenue. As you monitor and use the budget throughout the budget period, a dashboard can be an excellent tool for communicating. Creating a budget-to-actual report is important and necessary to generate data for a dashboard, but a budget-to-actual report usually requires additional context to communicate what variances mean and which variances are important to address. A dashboard can streamline that process and highlight points of discussion with greater clarity. If you are building a dashboard, be sure to engage the board in determining what metrics are most relevant to include.
What should board members focus on when reviewing budget information?
During the budgeting process, board members could ask about the basis for projections, the data used, or how projections compare to past performance. They might also ask what revenue streams and expense line items have been included or excluded, particularly if there is a change from a prior period. In monitoring the budget, board members could ask about variances between budget and actuals, whether variances were expected, and the impact of those variances if they are meaningful. Board members could review the amount of revenue generated and the reliance on different revenue streams. Board members should review spending distribution and ask about updated estimates for actual spending versus projections. Ultimately, board members should review the net between revenue and expense and how performance impacts cash flow and the organization’s current cash position. Utilizing a dashboard can be an efficient way to incorporate the metrics the board wants to assess in a presentation that is manageable for staff to generate and easy for the board to review.
Next installment: What if we are over budget?