A (0:00)

We've been taught to treat a balanced budget like a gold star proof that the organization is stable and responsible on solid ground. But the truth is, a balanced budget can be one of the biggest red herrings in nonprofit leadership.

B (0:18)

Welcome to the Nonprofit Mastermind podcast. I'm Brooke Ritchie Babbage. I've been in the social impact game for 25 years as a social justice lawyer turned two time nonprofit founder and leader turned growth strategist and coach for leaders around the country. I grew my nonprofit from me and an intern in a tiny closet to a high impact seven figure organization. And along the way I learned so so much about how to build an organization that has real impact and how to do it without burning out. In this podcast, I share the nuts and bolts of all of it. So you can do that. Too many we dive into the mindset, strategies and tactics of how to scale a high impact organization and how to do it in a way that's truly sustainable.

A (1:04)

Balanced budget doesn't necessarily tell you anything. You can always make the numbers work out. Shift this number down, bump that one up, cut a little here, tweak there. Voila. Balance. I think of a leader that I coached last year. She closed 2024 with a pristine balanced budget. Everybody was happy. She was sort of exhaling. She felt really good. But by March of this year, her team was drowning. Donor reports weren't getting out. Her staff kept coming to her talking about burnout. They were missing deadlines. On paper, her balanced budget should have meant that, especially because the budget to actuals were lining up. Should have meant that everything was fine. But in reality, the organization was breaking. So if a balanced budget doesn't actually guarantee stability, what does? So here's the first trap. Most budgets are built looking backwards. You take last year's numbers, you adjust them slightly and that's your budget. For most organizations, especially ones that are growing, that feels safe. It's familiar. It's very often the way we were taught to do budgeting just by default. But it's actually really risky because it locks you into survival mode and it creates an implicit ceiling. If you think about it this way, let's say you raise more money this year. Your balance budget, unquote, balanced budget looks good. But all of that money, let's say it comes through grants and some major donors, their reporting requirements, their compliance requirements, their staff time. There's follow up their stewardship. If your budget doesn't account for those things, then you've balanced the math but ignored the reality. So this is why so many Leaders describe budgeting or talk about budgeting almost using like a gambling language. If I choose wrong, will the whole thing fall apart? Right? Choosing the right or wrong numbers, or how to organize things, or where to invest. And that also leads to the decision fatigue that I hear on so many of my coaching calls. There's this constant anxiety that comes from building budgets that only reflect the past. The shift is this. We need to stop seeing a budget as a bookkeeping exercise and start seeing it as part of the design, the core design of your organization. So what exactly breaks budgets that look balanced, right? What are the hidden costs of a quote unquote balanced budget? And there are three that I want to highlight here because these show up time and time again, and they have the greatest effect on the health, instability and sustainability of impact for organizations. So the first is invisible labor. Staff time is spent on multiple things, some of which we see. Program outputs, concrete deliverables. Staff time is spent also on things that we don't tend to capture in budgets. So things like following up with donors, communicating with your community, thought leadership, stewarding, funder relationships. These things are almost never budgeted for, but they are a real part of what it takes to run the organization. So invisible labor is huge. The second leadership load, when budgets are unrealistically lean, which is usually what happens, the executive director fills the gap and you become the sort of chief of everything officer. When that's not in your budget, it leads to burnout, it leads to fatigue, and it leads to the executive director becoming the bottleneck and the ceiling for growth. And that leads to the third hidden cost or category of hidden costs. And that's the cost of growth. Growth costs. More money doesn't equal more relief all the time. It equals more pressure. There's more responsibility, more accountability, more reporting, more oversight. And those things need to be reflected in your budget. Now, the emotional fallout of these hidden costs is huge. Leaders tell me all the time, why does this feel so impossible? I should know how to do this by now. So balanced budgets, if we just look at what's on the paper, if we just aim for balance as opposed to reality, can actually create this sort of shame spiral. Because they hide the real cracks that are happening and showing up inside the organization until they become breaking points, right? And then it feels really bad. Why are we not, you know, why do we not have the money that we need to grow? Why do we not have the money that we need to hire, et cetera? The bottom line is a budget that hides costs is actually perpetuating Slow leaks. And those leaks, those cracks right in the container that's holding our work are going to break the more pressure you put on them. So what we want is a future reaction ready budget. I call it a true cost growth budget. That means it is a budget that doesn't just fund programs, it funds the systems and the people that allow those programs to thrive. That means that you are building in the cost of infrastructure, right? Of tech, of workflows, of automation. Those things absolutely make programs and work easier and better. And you want to be thinking about tech and workflows and automations and systems as you grow. And you need to think about what they cost the staff, the consultant. The actual tools have costs, right? The time has costs. It means that you want to be budgeting for the staffing, that you need to reduce burnout and to free the executive director from being in the weeds and to allow the executive director to sit in spaces that are high leverage, right? To do high leverage work. What is the cost of that? There should be numbers associated with the staffing that will actually hold the work you're doing. And finally, it means budgeting for and resourcing for leadership development, development of your team, not just programs. Investing in your staff so that they are growing along with the organization. What is the cost of that? That is not a nice to have. That's part of the infrastructure. Again, sort of design or operating system of your organization. I like to talk about it this way. You wouldn't try to pour a gallon of water into a single cup, your container. Your organization needs to be designed for the weight of the work it's trying to hold. It needs the staff, it needs the systems, it needs the workflows and the automation. And those have costs. Budgets are the same. They should reflect the organization you're building and the impact you want to have and the cost of that impact, not where you've been or what you think you can do. Right? That's why I call it a true cost growth budget. And, and the reality is they aren't always easily balanced, right? They are strategic design tools. That's how you should use them. And so what needs to be brought into balance in a budget is the work that is being proposed, not just the numbers on the page. So I know there are some objections that come up when, when I talk about this with folks or not objections, but sort of challenges and questions that people have. And they're rooted in equal parts fear and reality. So the first big one is we can't afford to budget for what we don't have. And I hear that I have run organizations at every stage. I was a founder. I've grown organizations through growth stages. I've been the leader and on the board of and coach organizations at sort of the sustainability part and the scaling part. I understand the dance that we do between the money we need and the money we have. But this is where a true cost growth budget becomes even more critical. If you don't name what you need in the budget, you guarantee you won't resource it. The budget is the storytelling tool that tells your investors, your funders, your donors how much your impact costs. The budget is how you declare what matters. So if you don't budget it, you can't raise it. Here's a second objection. Our funders won't support overhead. So luckily, we are moving in a direction where this is less and less true, right? More and more funders are understanding that even for program support, part of supporting a program is infrastructure, right? Or what we have traditionally called overhead. Your job in putting together a budget is to name what the true cost of that program is, of the work is of the organization is. For those of you who are thinking about general operating support, this becomes even more important. Funders can't support what you don't articulate. And hiding operations keeps you fragile. They're there. You, they. The money has to come from somewhere. And so not putting them in the budget means you are underfunding the work, naming the operations, the infrastructure. The overhead actually creates the possibility of support. It opens the door for conversations about the true cost of the work. And here's the third one, and this one's particularly insidious. We'll budget for systems once we grow. So this one's, I think of the three the most dangerous. Trying to grow before you actually invest in systems just accelerates your breakdown. It means that you are building a fragile container from the beginning. You're baking fragility into your organization. Now, all of these objectives, we can't afford it. Our funders won't support it. We'll budget for systems once we grow. These are red herrings. I just like the idea that balance equals stability. They distract you from the deeper truth, which is that your budget tells the story of the true cost of your impact. The danger is when you keep the work plans and the programs and the partnerships the same. But you pass a budget that doesn't include the staff you need or the tools you need or the systems you need for that work. Doing that guarantees your fragility and over time, your burnout basing your budget and what you think you can raise is the tail wagging the dog. You want to be able to go into conversations with donors and funders saying proudly, this is what we're doing in the coming year and this is the money we need to do it. Instead, what you tacitly say with a backward looking budget is this is what we think we can raise and we'll do whatever that allows us to do. That is a subtly different, but incredibly importantly different statement. Even if it's just a narration in your own mind, if your budget doesn't tell the real story of your impact, you cannot achieve that impact. You can't raise the money for that impact. So here's the takeaway from today. A balanced budget is just math. Math isn't strategy. And neat columns of numbers don't protect you from stalling or collapsing from burnout. We can always make our numbers line up in a way that makes our board feel safe and our development team feel, you know, empowered. But that doesn't mean we've really engaged with what our planned impact costs or that we've resourced for for that impact, that we've resourced for growth and for stability. So my question for you as we continue to make our way through planning season, as you think about the coming year, are you treating your budget like a fancy bookkeeping document or as an expression of the future you want to lead? I use and teach these step by step frameworks inside my next level nonprofit program because I believe you cannot grow a stable and sustainable, sustainable institution without an a really robust operating system. And your finances, your budget is one of the anchors of that operating system. It is the anchor of your capital. It is what tells the world this is the money we need. It is the guiding document for your finance plan for how you will raise your money. And so making sure that your infrastructure is strong is one of the things we do inside the next level nonprofit program. Doors are open. I am enrolling right now for this quarter and heading into 2026. If your budget is 800,000 or more and you want 2026 to be a powerful year of growth and stability, head to Brooke ritchiebabbabbage.com backslash fitcheck fill out the fit check and I will send you information about how I might be able to support you. I want to leave you with this. Your budget is not just a financial document. It's a really powerful storytelling tool. It's your way of saying to the world, this is the future we're building and this is the support we'll need. So that's it for this week. I will see you back here next week for more Mastermind.