I am a non-profit board member, and I will tell you: For the most part, I pull my hair out at board meetings when we get to the budget. Usually there is a series of QuickBooks reports, presented in PDF, in teeny-tiny font. The line items don’t always make sense, and it is often very hard to tell if a particular initiative is actually financially healthy for a non-profit. Many non-profit budgets I’ve looked at left out entire pieces of the organization, or tried to get too detailed or oversimplified things; budgets like that are not very useful as an ongoing tool.
Yet the board of directors is required by the U.S. government to approve an annual budget, and the board must then review that budget at regular board meetings. The law’s there for a reason: Budgets are an important tool for non-profits. But if your budget is anything like the ones I just described, you know that this whole process can be cumbersome, and not particularly useful or valuable. And if even your board members can’t tell what your budget’s trying to say, what about donors, or banks?
There’s a better way to budget. Here are three good reasons to think about changing your non-profit budget process:
1. You can get more out of your board members if meetings are efficient.
Board members are usually very busy, very accomplished people. They have joined your board in order to help you be more successful, and because they believe in the mission of your non-profit. But they do not have the time to pore over your bad budget and whip it into shape.
What if your board members could look at your budget online, anytime, and see how it compared to the actual results, the previous month and the same month last year? Imagine if the board member could easily understand which programs and initiatives were successful and sustainable, and which were not. Imagine a world where board members were happy and excited to look at the budget, see what was actually happening, and give better feedback, help and support.
This can happen. There are better tools to use, and a better methodology to help you draft better budgets. Here at Palo Alto Software we strongly believe that looking at your budget every month—and comparing it to the right numbers—will change the way you manage your non-profit for the better. Those “right numbers” are your:
- Actual Results
- Previous month results
- Same month last year results
One of the best ways to achieve this is by using a software designed to do it for you. Of course I’m a little biased, considering I helped create it, but the truth is that LivePlan is that software—it’s designed to help you evaluate your business easily and accurately. There’s nothing else like it; that’s why we made it.
2. Donors want to see where their money is going.
When a customer buys a product, they just want the product in their hands—they’re usually not too concerned about where the money from the sale is going. Donors to non-profit organizations are different: for them, it’s all about where the money is going. Donors want to give their money away to “a worthy cause”, and you need to show them that that’s what you are.
Part of showing that you’re worthy of a donation is showing that you’ll spend the donation wisely. Ever heard of Charity Navigator, the site that ranks charities based on how well they’re using their money? Savvy donors rely on that kind of information to decide where and how much to donate, and you should include it on your website, and in your brochures. And when you have a good budget, and an even better budget review process, that’s easy to do—all of your financials are already listed, current and organized into standard tables and charts, complete with information on why you’re spending what you’re spending and what exactly it’s accomplishing.
3. When you want to grow, you’ll need to ask a bank for a loan.
“Non-profit” is a bit of a misnomer, isn’t it? A successful non-profit may not generate profits, per se, but it does bring in more money than it spends; it’s just that a non-profit re-invests 100 percent of its “profit” back into the organization, so it can expand its services and operations. But, because a non-profit usually relies on donations and grants for its revenue, it might not have much (or any) “profit” at the end of the year, and expansion may come very slowly.
So what does a non-profit do if it sees an opportunity to provide better services, or expand its operations, but it doesn’t have the money up-front? The board of directors may decide to do the same thing that a business would do: seek out a business loan, or a credit line. And if you want a business loan—especially if you want to lock down the best terms and interest rates—you’d better present a knock-out budget. And as we all know, the best budgets aren’t the ones that were whipped up in a week; the best budgets have been created with the expertise of your organization, constantly edited and adapted to reflect the changing needs of your market. If you go to a bank with a budget like that in hand, especially if you can also show your actual results, and your strategy to manage your cash, you’ve significantly increased your chance of securing the loan you want.