← Nonprofits Are Messy: Lessons in Leadership | Fundraising | Board Development | Communications
Nonprofits Are Messy: Lessons in Leadership | Fundraising | Board Development | Communications
Ep: 241: Nonprofit Budgets Done Right: Goals Drive and Numbers Follow
00:31:05
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I have big feelings about nonprofit budgeting, and it's probably because I was trained in budgeting in the decades I spent in the for profit sector before discovering the joy and privilege of nonprofit service, I had really fine mentors in the for profit sector. I was sent to professional development seminars called Finance for the Non Financial Executive. I was given a very, very cool high tech calculators because they have those then. So I know a thing or two because I was taught a thing or two. And I often find that nonprofit leaders are at a disadvantage because they don't have that same kind of background. They're not as financially literate as they could be, or they should be. And as a result, nonprofits don't do the whole budgeting thing well. And oh my, when nonprofits are in an ongoing state of crisis, it's all the more important to get it right. Today I want to talk about what we get wrong and the missed opportunities that come with a budgeting process. The missed opportunities of innovation, forward motion, creativity. Yes, I said innovation and creativity and budgeting in the same sentence. Stay with me. I'm not naive. Am I optimistic? Oh yeah. Am I hopeful? You bet. But I am not naive. This podcast is for all nonprofit leaders, staff, board treasurers, finance committees, and I want you to picture this. Imagine for a minute that a budget process wasn't a slog, that it wasn't depressing. Imagine a process that didn't get programs pitted against development and that board members could check their fundraising anxiety at the door. Imagine if a budget process opened the doors to possibility. I don't think we have to imagine it. And so today I'm going to make that case.
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Welcome to Nonprofits Are Messy with Joan, Gary and Experts. This podcast is your go to space for insights, advice, and inspiration, designed to help nonprofit leaders overcome challenges and drive impact. Whether you're navigating small beginnings or leading a larger organization, we're here to support you every step of the way. Together with Joan and a diverse group of expert guests, we tackle the big questions nonprofit leaders face and offer actionable advice to fuel your leadership journey. A special thank you to donorperfect for sponsoring this episode and supporting nonprofits that we love. Now let's jump in.
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I want to make a number of important statements. Let's call them headlines. So headline number one is that numbers tell a story. Some people think it's a spreadsheet and that the object of the game is to get the numbers to tick and tie. That's part of the object of the game. But you're only got half a loaf. So I spent seven years at mtv, seven years at Showtime, and as I said, my mentor at MTV determined that I had the capacity to develop financial literacy and invested in that. It paid off. I built a business plan for the Video Music Awards for MTV that is a successful franchise to this day. I moved over to Showtime and I was known around the company as somebody who could look at a P and L or a budget and go to a senior executive and tell them the story behind the numbers. What do I mean by that? So distinguish between a controller and a cfo. A controller makes sure the numbers tick and tie. A CFO can look at those numbers and see the story and can communicate that story as a strategy to inform decisions they should make, tough questions they should ask themselves, and that using it becomes a vehicle for the future. It's not what happens often enough. And that's why I am frustrated. So while I was at Showtime, people found me to be pretty good at it. Now, maybe it's because I'm an Irish storyteller and I could find a great story in a ton of bricks. That's possible. But in this case, I could find stories in numbers. And they liked what I did so much that they deployed me to the finance department for a year. Now, I'm not going to say that I thought this was a great idea. I didn't want to go to the finance department. Although, if I can just say, the best boondoggle retreat I ever went to was run by the finance department of Showtime back in the early 1990s when boondoggle retreats happened, it happened in the Southwest. And all I'm going to tell you is it involved glow in the dark golf balls and headlamps and a nine hole golf course with every hole a different cuisine, but all the same open bar. That was my understanding of what a retreat was until I got to the nonprofit sector. And then I got my smackdown. Anyway, I digress. I taught and mentored people in the finance department about how to write the stories the numbers tell. And I believe that Showtime, as a result, made better, more strategic decisions. So there you go. That's my first headline. You've got to start to think about numbers telling a story and make sure that there's someone on your team, board or staff who can help you glean that story and the implications from it. Okay, number two, should we level the playing field and talk about what a budget is? Sure, why not? Anyways, my podcast A budget isn't just the revenue and the expenses it's something more. I want you to think about a budget as a vehicle, as a tool. It is in the service of something else. It is not an end in and of itself. We may live by that budget during the course of a year, but I would argue it is not a living and breathing. It is a living and breathing document that can shift as we know things. Should it shift every 20 minutes? No. Should it be revisited every quarter? Yes. Because it is a vehicle and it's a tool. You're asking, aren't you? What is it a vehicle and a tool for? Well, that leads me to headline number three, doesn't it? Should I leave you in suspense about what it's a vehicle and a tool for? Oh, I think I should. I'll tell you after this. Today's episode is sponsored by DRG Talent. I go way back with drg. This team is passionate about strengthening the nonprofit sector. Their work goes well beyond a holistic executive search process with strat plans, comp analyses, culture surveys, leadership 360s, and the list goes on. I refer clients to DRG regularly, and I'm excited to be able to say this with a microphone in front of me. These folks are good and they care. Reach out to them. Drgtalent.com and tell them Joan Gary sent you. We're back. Numbers tell a story. A budget is a vehicle and a tool in the service of what? Headline number three. It's in the service of goals. Goals. This is the big thing that we miss all the time. Goals precede budgets. A thriving nonprofit presents goals. Here's where we want to go over the next 12 months, if you have a strategic plan and you're able to kind of stay on the bucking Bronco with it, you want to tie those goals to. To a particular year of that strategic plan. If all hell is broken loose, you can't imagine what I must be talking about. You take one year and you say, what will success look like a year from now? If we do our jobs well, right? And you create those goals for the coming year, you present them to your board, and they say, yes, that's where we want to go. And you don't tie money to it. You tie impact to it. A year from now, we want to do X that we're not doing today. We want to be able to make a case for funding from X, Y, and Z. We want to diversify our revenue so that we are not overly reliant on a particular stream, whatever those goals are. And they should absolutely tie to impact, and they should be laser focused on your mission and you get your board and your organization rallied behind these goals, no money attached. And then you say, okay, are you bought into these goals? They say, yes, we want to go there. And then you say, we're going to build a budget that will be a vehicle, a tool, a roadmap to get us there. Why does this matter? I'll continue talking about this as we go through. But it makes it a lot harder to cut things, doesn't it? If you have actually gotten everybody fired up about your goals? Well, it makes it hard to make the argument that, well, we can't raise enough money because we really want to hit those goals or we can't afford to spend X. Well, if you don't spend X, we're not going to hit our goals. So a budget is a vehicle, and it's a vehicle and a roadmap to goals. I think we miss this step more often than we do not. I think we miss this step almost all the time because we hand off budgeting to finance folks. We don't start at that more strategic level with a strategic conversation at the leadership of the organization, including the finance person, about what the next year looks like if you're successful. Okay, if you do this, then there's another headline. It reduces tension in the budgeting process. What tension? Joan, you know exactly what tension I'm talking about, don't you? Yeah, you do. You're talking about. We're talking about the tension between programs and development. We're talking about the tension between board and staff. We're talking about the emotional pieces of budgeting and cutting this or feeling like the fundraisers aren't digging deep enough. Right. We can avoid some of this if we have goals and if we collaborate. I think that far too often a CEO looks at each department in a kind of a silo. And I recommend that when your department's budget is complete or drafted, including fundraising, that everybody sits around a table and they talk about their budget in the context of the goals that everyone has agreed on. Here's what I think I'm going to need to hit those goals. And if you've built a culture that is rooted in respect and trust for the people around that table, you can ask good, smart questions that are not loaded. Right. You can say, so. I thought maybe I'm mistaken that so and so did X, Y and Z. And you're looking for someone new to add who does Z, doesn't so and so do Z. Asked with curiosity and respect. I'm going to Give you an answer about why Z is a standalone full time job. I might not win the day, but I can make a case that is not defensive. The other thing about this collaborative presentation of a draft of a budget is that's always going to be a gap. There's going to be less money coming in and more expenses that each department wants. Right? That's okay. In fact, I think it's useful for the development team to see what each department needs to meet their goals. I believe it can be an incentive for them to look deeper, to start thinking about what they might be missing or what it would take to add X percent more to the fundraising number. It might be the incentive they need to work more closely with the board, development committee and the board at large to really begin to think about how to turn them into ambassadors so that the development department has a bigger army because it's not just staff, but board as well. Am I talking about something that's very idealistic and naive? I really don't think I am. I really don't think I am. Because if through the course of this conversation, the development department goes back and each department goes back and they add some and they whittle some and they come back with something that they feel good about, they own it. It's not been imposed upon them by a CEO or by a board chair or treasurer or finance committee. And I will tell you every day of the week and twice on Sunday that if people own their budgets, they are 10x more likely to hit them. I think you all know that. Okay, the another headline I have is board education and I'm going to just talk about this any chance I get. And because I have a microphone on a podcast, I get a lot of chances. So what do I mean by board education? I mean that we have to, especially in these times, make it so stinkingly clear to board members that they have a very important job, that they have to take it seriously that financial literacy is a non negotiable for every board member, not just the treasurer. I can't be a board member, listen to a budget presentation, roll my eyes or think, okay, the treasurer has it so I can see what the score of the playoff game is. No, you are all as a collective responsible for the fiscal oversight of the organization. But that doesn't make you cautious. You're going to help to build a budget that achieves the goals, that actually increases the impact of your organization. And by the way, isn't that why you got on the bus to begin with? Yeah, it is. Yeah. It should be. And if it's not, there might be another organization that's better suited for what you bring. And that's okay too. There's lots of boards out there looking for great people, but they're looking for people that are hell bent on making an impact on the people they serve, on the communities they advocate for. But we have to do a better job of educating our boards about the importance of the jobs and about fiscal literacy. I happen to think that it's an incredibly important goal for a finance committee during the course of a 12 month period to help board members become more financially literate, to understand the financial operations of the organization so that they make informed decisions rather than take a cautious or risk averse stance and try to lower the fundraising numbers because they are anxious about the landscape. I am out there. I'm here to tell you right now, today, in the middle of the darkest moments of the nonprofit sector, to tell you that there are organizations that thrive, that are raising money, that are doing great things. Not everyone is struggling. And if they're not struggling, it's because their board understands they have important jobs, because the clarity of their mission is is spot on, and that everybody's an ambassador. So there are a few other headlines that are important to really rethinking nonprofit budgeting and getting it right. I'm gonna come back to those in just a minute. Are you a staff or board member of a small to mid sized nonprofit? Now, you might feel alone, but trust me, you are not. I built the nonprofit Leadership Lab for the millions who are just like you. You'll find time saving resources when your pants are on fire, opportunities to uplevel your skills, and a warm, nurturing private community of what we call superheroes. Thousands of board and staff leaders call the lab home and we'd love for you to join us. Learn more@nonprofitleadershiplab.com podcast. This is a really important headline. It comes with board education, it comes with fiscal responsibility, and it is called the cash reserve. Let's talk about the cash reserve, shall we? Okay. Some organizations are not stable enough to have one. I get it. I arrived to a nonprofit organization that had no cash reserve. And I knew that that was an essential ingredient to sustainability. But here's what's happening in this moment. In this moment, the cash reserve is being held onto by board members very tightly. You know why they're worried? They think there's going to be a rainy day and they'll need it. Headline news, my friends. We are in a year and maybe in the the same place for a few years to come where it is not just raining, it is pouring. It is the time when a cash reserve may in fact be the difference between whether or not you invest in innovation, creativity, and impact in a way that you couldn't if you don't touch that reserve. I've been a donor to organizations that have such big fat reserves that I have stopped giving because when I ask the question about how they deal with their reserve, they're so proud of how much money they have in the bank. But when I ask about innovation, creativity, how does that money get invested for piloting and trying new things, I don't hear what I want to hear. And so I am begging on behalf of every nonprofit leader whose board is reluctant to part with reserves to think differently. Now, am I suggesting that boards should be reckless and hand over the keys to the reserve to the staff leader? No, no, no, no, no, no, no. I am not. I can hand you at least one live example, and there are dozens to follow, of situations in which a staff leader has the keys and blows through the reserve. So, no, I am not suggesting that. I am suggesting that there be a policy about the reserve, what it is used for. It should be very clear about what kind of case I, as an executive director need to make in order to access that reserve. And the vote should be, you might want to consider a supermajority. But that goes back to what I said a little while ago about board education. Your board is not a group of risk managers, and they need to be told. So they are supposed to create forward motion for the organization, and it may in fact come from the reserve. There are so many nonprofits out there that are advocating for marginalized communities, and they are struggling on every single level. Not just the people they serve, but the people with lived experience who work at those organizations. You need to listen to them. This is a moment like no other. And if I am a member of that marginalized community and I hear you're sitting on a wad of cash, I'm wondering what the hell you're doing for me. So please. I get it. It's a balance. Cash reserves. I get that it's a balance. But cash reserves that are sort of held onto as if some other rainy day is coming is not typically in the best interest of a nonprofit organization. And it is so not in the best interest of an organization when we are trying to meet. One of the most difficult moments that there has been since I have been a nonprofit executive director since 1997, the last thing I wanna say is, please give the organization the opportunity to try things. And when I talk about try things, I'm talking about pilots and I'm talking about illustrating proof of concept, right? If I'm an executive director and I come to you and I say, I wanna start a brand new program, I wanna grab all that money from the reserve and spend start that new program because I believe in my head and in my heart that we can make a huge impact in this moment. If I'm a board chair, I might actually be skeptical about that. And I might say, can you illustrate proof of concept in some way that has some relatively quick turnaround that helps us to understand what kind of a big difference it could make? And in fact, that that proof of concept could lead us to, to all kinds of new funding opportunities, right? I want you to try stuff, I want you to try make an investment in individual giving. Program. Focus a particular member of your development team on bringing back lapsed donors. Solving the leaky bucket problem. Far too often, board members look at the total dollar amounts raised, but they're not distinguishing between brand new money and renewed money. Your renewal rate of your current donors should be high, and there are ways to do that and ways that include your board, like stewardship programs where you nurture your current donors so they know when it's time for renewal and you might even know when it's time for them to upgrade. These are all strategies. These are all strategies that engage everybody, that are different, that are new, that are innovative, that could lead to new sources of revenue, that could lead to higher renewal rates on donors, that could lead to funders who say, oh, I like that proof of concept on that pilot. I'd like to fund it for the next couple of years. Because that's different from things that are happening out there. These are the things we need to be thinking about now. You might think as I start to wrap this up, that many of the things I'm talking about are strategic, maybe strategic planning related. And you're not wrong. You're actually not wrong. The issue here is that we separate strategic work from goal setting and budgeting. And they're of a cloth, the times we are in are different from any other, different even from the pandemic, because we could deal with the pandemic with this hope that there'll be a vaccine, that there'll be an end to it. I could make an argument that the nonprofit sector may be forever changed by what's happening in the world today and that we actually, as a sector need to change with it that a good old fashioned the kind of budget you created in 1999 or 2010, right, might have been business as usual. I'm not sure when we're going to see business as usual ever again, and I'm not sure it was all it was ever cracked up to be. So please board chairs, CEOs, CFOs, treasurers, controllers, if you're lucky enough to have a decent sized staff, and even if you are not, take a different approach to budgeting. Can I encourage you to send this podcast to your board? Make time for a discussion at a board meeting about how you might think differently about budgeting. You might be listening to this and the budget may already be put to bed. Okay, think about a quarterly reforecast re estimate. Think about the things you cut out of the budget because you couldn't afford them, things that people really wanted. Have those conversations, continue to have them, and then start to look towards next year for budgets that are goal based where the board is educated, fiscally literate and open to new ideas. We ourselves, as leaders of the nonprofit movement, have the agency and own what happens in our own organizations as it relates to goals and budgeting. And if we think old school, will be old school. If we think old school, our impact will be limited. And I'm here to tell you that the people we serve, the communities we advocate for, they need more than old school. They need a holistic approach to budgeting that really focuses on goals, focuses on what we need and want to do for the people we serve. I hope you found this thought provoking and I do hope that it will spur conversation in your organization. Because while it is not the sexiest topic in the world, budgeting should be at its core, a very strategic conversation and endeavor. So lastly, I know you can do hard things and I know there are more things and they are harder than they have ever been. Every time I put myself in front of a microphone, I think about how I can reframe, help you rethink how I can put gas in your tank to think big, to try new things. Because that's the way, that's the way to go that separates the good from the great, the struggling from the thriving. In the meantime, please, please, please take good care of yourselves and your teams and I'll see you next time.
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Thank you for spending time with us today. We hope this conversation provides valuable insights as you navigate the messy but meaningful world of nonprofits. A special thanks to Donor Perfect for sponsoring this episode and for their dedication to empowering nonprofits like yours to do more good. For more resources to support your work, visit joengary.com podcast. We think you'll find a lot of helpful things there. Most importantly, thank you for all you do to make the world a better place, one small or large step at a time. Talk to you all next time.