Having worked with nonprofits as an employee, chief financial officer, auditor, and financial/systems consultant for the past 25 years, I’ve encountered an unlimited array of budgeting approaches. And I’ve worked with many organizations that have abandoned budgeting altogether. Then there are the budgets that effectively become sledge hammers, cursed by the victims. Oh, the worst of all are the “torpedo budgets” that appear from the unknown, then the unsuspecting managers are recipients of “responsibility without authority,” syndrome … later abandoning ship.

All would agree that budgets are vital to a healthy organization. They are keys to guiding the ship forward with meaning and success. So how can budgeting work effectively? Below, I’ll outline three characteristics that are key to success in budgeting.

First, leadership must have a proper understanding and perspective of budgeting. It is a tool, but it’s not a hammer. Its primary purpose is to be a map and rudder; effectively providing direction based on vision, purpose, planning, and then guiding the organization forward. But it doesn’t stop there. It has to be communicated and projected to managers as a tool, equipping them to have what they need to do their jobs and complete the mission before them. As CFO of a university, I inherited the task of redefining budgeting and getting buy-in from the staff who had been tortured by “The Budget” in the past. While challenging, this can be done, but requires that trust be established through both communications and actions.

Another vital key, is a defined budgeting process from beginning to end. A clear, simple, and communicated budgeting process must be established. This includes tools that work. An excellent accounting system with the ability to track all relevant cost centers (for example, grants, locations, funds, departments, projects, programs), and an integrated budgeting tool is vital. Using multiple software programs for budgeting is a recipe for inefficiency at best and failure at worst. Provide staff with tools, budget worksheets, reasonable calendar deadlines, logical budgeting processes, and “open door” support. Engage the same people who will be responsible for managing the budget in the process, then you will create a culture of buy-in and ownership.

Finally, once the budget is thoughtfully completed with key staff involvement, then it becomes a critical tool for the organization. Leadership must provide clearly presented reports by relevant cost centers on a timely and ongoing basis. These should be automatically provided by an integrated fund accounting system. Further, a good system should provide timely warnings and feedback if proposed transactions exceed the budget.

In my career as a CPA, auditor, and consultant, I have seen how hundreds of nonprofits have operated. One common element in the most successful organizations I’ve observed is effective leadership regarding budgets.

About the Author

Glenn Stephens is President of ProSoft Solutions, Abila’s Business Partner of the Quarter. Each quarter, Abila recognizes the top Business Partner, based on its continued support of our association and nonprofit customers. Abila Business Partners are trusted experts authorized to resell and implement one or more Abila products.