Whole Organization Budgeting: A Collaborative Approach for Nonprofits
We all know smart, dedicated nonprofit CEOs and CFOs who, out of convention and necessity, cloister themselves for one or two sleepless nights before the last board meeting of the fiscal year to create their organization’s annual budget. They are single-handedly attempting to capture the mission, plans, and strategies of their organization in the language of finance – just in time for a cursory review by the board and their approval. I have only empathy for the burden and enormity of taking on this task solo.
Happily, there is another way. Taking a whole organization budgeting approach brings together the talents, insights, and energy of key staff from throughout your organization. This approach relieves the CEO or CFO of sole responsibility and shares ownership and accountability for the budget, and the careful mission planning it represents, among your whole organization.
The Four Phases of Budgeting for a Whole Organization
It takes time to collaborate, so begin budgeting far enough ahead of your fiscal year end to allow for full participation. Instead of allowing budgeting to become a last-minute rush, start soon after the mid-point of the year to truly give room for thoughtful engagement among staff and board members. In my experience, you will want to plan time for these four phases of whole organization budgeting to ensure a successful process.
Phase 1 – Think Resources, Not Dollars
As a first step, align your budget process to the way your organization most naturally goes about its work. Start with the premise that your departments, programs, and projects all flow directly from your mission. Do a quick assessment – does your organizational structure match and amplify what you are trying to accomplish in the world?
Develop work plans to translate strategic plans into action items and a list of resources. One way to unify your planning and budgeting across the organization is to keep your focus on the bigger picture. Use the time and effort you invested in creating a strategic plan to guide you to a coherent budget, where all of its parts are in harmony with one another.
Hold a series of “No Numbers” sessions with your departmental and program leaders to discuss what resources they see as necessary to carry out their best work in the coming year. Ask them to describe what they need in terms of people, infrastructure, space, materials, technology, and outside support. By divorcing the conversation from dollars and focusing on resources, your program leaders are likely to be more innovative in their thinking.
Phase 2 – Your Gaps Become Your Goals
To encourage innovation, calculate costs after you have identified the needed resources. Once you have determined your ideal mix of resources, turn over the list to your finance team to put numbers to the items. To give you a picture of the true costs of each of your programs, ask your finance team to include an allocation of core mission support for each department or program.
Now that you have a list of resources and their associated costs, look at your possible funding sources. Inventory all the current and potential sources of funding you consider committed. Add in those that are not yet committed, but you would consider probable based on prior experience or solid relationships with potential donors. To estimate what funding you might tap from prospective new sources, look back over the past five years to see what percentage of return you generally get on these types of requests.
Once you have determined both resource costs and estimated funding, look to the gaps to inform your next steps. Try to avoid looking at gaps in a budget as negatives. Gaps in a budget simply help you clarify your priorities, spur you to innovate, and offer your whole organization a chance to come together to share decision-making and strategy setting.
Phase 3 – Create a Plan, Vet the Plan
With gaps identified, you can purposefully shape your budget to overcome them. The levers you have at your disposal are to add revenue, to cut expense, or some combination of both. For a truly collaborative process, invite your senior program, development, and finance leaders to share in the process of weighing the options. You have an opportunity to strengthen your organizational culture by including a wider group when discussing finance and budgeting decisions.
Addressing the gaps provides you with a solid first draft of your budget. You have listed the resources required for a successful program. You have named the sources of funding you believe will be available to provide those resources. Now it is time to vet the plan by circulating it among staff, management, and board members.
When inviting participation in the budgeting process, it is important to be transparent about what level of input and influence you are offering to those you include. As you gather input, you will need and want to make changes. You may choose to circulate the draft more than once. Remember that it takes time for true collaboration.
Phase 4 – Approve the Plan, Implement the Plan
Vetting the budget ultimately involves putting it in front of the board for approval. To avoid letting this process become a rubber stamp or to prevent a surprise rejection of your budget, find ways to include board members early in the process. You may choose to pass the draft through the finance committee or circulate it among board officers. Most boards appreciate being meaningfully involved in the budget process prior to the meeting where it is considered.
A thoughtfully crafted budget is a blueprint for accomplishing your mission and program priorities. It does very little good if, once it is created, it disappears into your accounting system never again to be discussed with program leaders. Implementing your budget is a great opportunity for your finance team to integrate more actively with your whole organization. Your program, development, and finance teams can work together to monitor whether you are meeting key priorities and fulfilling obligations. Looking regularly at your budget allows you to double check if you are delivering what you promised in your program plans and grant proposals.
It takes time and intention to budget differently
An effective budgeting process, like strong nonprofit financial leadership in general, is best when it engages the whole organization. With some planning, and a willingness to set aside old habits, you can create an annual budget that draws on the valuable perspectives and experiences of a range of leaders from across your entire staff.
Learn more about Whole Organization Budgeting
Watch for more information about an upcoming CLA webinar covering this topic on January 13, 2021. Check the CLA Events page regularly for details about registration.
Curtis Klotz is a CPA serving as director of nonprofit innovation at CLA. His writing is inspired by his work in CLA’s nonprofit consulting and business operations practice and more than 30 years of industry experience. Before joining CLA, Curtis was vice president of finance and CFO at Propel Nonprofits, where he was a frequent online contributor to Nonprofit Quarterly and other blogs. He was named Minneapolis/St. Paul Business Journal’s Nonprofit CFO of the Year in 2017, and is past chairperson of the Montana Nonprofit Association. Curtis graduated summa cum laude from St. Olaf College with majors in women’s studies and religion.
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