By: Tara Levy
Building your organization’s budget for the following year takes most nonprofits 2-3 months, so many organizations with calendar-based fiscal years are getting started now. When nonprofits think about budget, one of the biggest gripes is growing need for staff and the costs associated with that. Often the “solution” is to hire more employees – but that doesn’t have to be the only answer (or even a feasible solution).
Whether you begin the process by looking at the current year’s actuals or building from zero, here are a few things to keep in mind in terms of building a useful and sustainable budget.
Consider the organization’s true risk tolerance.
Developing the budget is a team effort and effects all parts of your organization. Even if your Executive Director and Treasurer do most of the heavy lifting, you’re also going to be bringing in the full board, senior staff, and perhaps even program-level staff. Everyone has a different comfort-level with financial risk (and yes, how I said “risk” and not “boldness” or “capacity” tells you a bit about my comfort-level). When you collaborate on the budget process, you need to recognize this and determine an appropriate organizational comfort-level with revenue goals.
- Are you seeing a demand for services or growth ambitions from board members?
- How much MORE have you committed to do next year?
- What impact will that have on current staff?
- Is there anything you need to say ‘no’ to? Is your staff already working at full capacity?
Different people in the budgeting conversation may have different answers to these questions. You need to gain clarity on what will be pushed forward with certainty, and what the repercussions are.
Your staff deserve real recognition.
Most nonprofiteers aren’t paid enough for their herculean efforts, and they often get raises rarely and in small amounts. A coke and a smile makes me happy most days, but COLA raises don’t really satisfy or motivate employees. If you want to see a meaningful difference in performance and output or if you’re asking staff to do more than ever, budget to pay them as best you can. Determine what is financially feasible as you think about the true costs of turnover versus retention. I suggest doing an analysis of the impact various level of raises (1%, 3%, 5%, 10%) have on the organization’s bottom line. Often the difference is minimal to the organization but enormous for the employee. Investing in your staff saves you expenses later in recruitment, covering vacancies, and retraining anyway.
Also, make room in your budget to include expenditures for training and professional development, as well as for staff care. Breakfast taco Tuesday, bagel Thursday, or pizza Friday don’t add much to your bottom line, but they help your staff feel taken care of—a nice treat in a day where they spend most of their time caring for others.
Prepare (and budget) for extra capacity.
You may not be able to hire the additional staff that you really need, but there are other ways to increase capacity. Set aside funds in the budget for contractual services so you can bring in an external evaluator, consultant, meeting facilitator, graphic designer, web developer, or any extra set of hands should a one-off need arise. Depending on how your budget is laid out, you can add a general line item for “external support” or include it in a specific department’s budget. If possible, you’d want to set aside at least 5% of your overall budget each year in this additional capacity or contractual work line item. This can also serve as an “insurance policy” for unanticipated expenditures in administrative or staff costs. If, however, you already know that you’re doing a large-scale project (strategic planning, website redesign, etc.), be sure to include additional professional support and related costs in the budget.
Building a budget process that allows time to be thoughtful and considers organizational capacity and risk tolerance will write the script for a productive year. Nonprofit Elements can help you think creatively about how to budget (or find funds) for additional capacity that allows your organization to grow and succeed without financial strain.