A Five Point Check-up for Effective Budgets
In his book, Linking Mission to Money, nonprofit finance guru Allen J. Proctor explains that budgeting is where the "rubber" of resources meets the "road" of vision. Proctor lists characteristics to make sure your budgeting is on track, identified by The National Advisory Council on State and Local Budgeting as the hallmarks of developing an effective budget.
1. Long-term perspective
Each budget decision will have a consequence on future years. Budget discussions should be focused heavily on the desirability and relative importance of those consequences:
- Is service demand likely to grow in future years, and does the budget start planning for that growth?
- Will current grant and philanthropic efforts support such growth? What does the proposed budget do to support those efforts?
- Will any facilities need significant repair or modification in the next few years? How will you pay for them?
- Will some savings be used now or in the future?
- Do you anticipate borrowing now or in the near future?
2. Linkages to broad organizational goals
Make sure the proposed budget addresses each goal by requiring staff to demonstrate or reaffirm that activities and resources are clearly linked to the main goals of your organization.
3. Focus on results and outcomes
Use the budget process to document exactly what another year of the organization’s existence should accomplish. Moreover, year-end measures and documents proving you accomplished what the budget predicted will attract donors and grantors.
4. Effective communications to stakeholders
View the budget as an opportunity to communicate what the organization is about and why money devoted to it is money well spent. Donors favor organizations confident enough in their value to subject themselves to measurement and verification.
5. Constructive motivation to staff
A healthy budget process energizes staff, encourages their ideas, and fosters dialogue across the organization about how to make the most progress from the resources available.
Allen J. Proctor is an author, columnist, speaker, and consultant, with 30 years of experience evaluating the financial health of organizations, developing effective business strategies, and enhancing organizational effectiveness.