Having worked with non-profit organizations for many years, I have witnessed both sides of the relationship between a board and its budget. For some, the board fully understood the annual budget and the mission it supported, and for others, they didn’t know where the organization got its funding, or how the funds were spent. Your annual budget tells a story – a story that your board should be able to tell as well.
When you share your organization’s budget with your board, do their eyes glaze over? Your organization’s budget – and the balance sheet, the income statement and any other financial documents you share – should tell the story of how your organization is serving your community through your mission. Your budget should be clearly written so your staff, your board and your donors can identify sources of revenue and understand how the funds are spent.
An annual budget shows anticipated sources of income (revenue) while the expense items outline how the funds are expected to be spent. When your board understands the budget confidently, they are able to talk about the strength of the organization to your community to your donors and to prospective donors. They are able to discuss the programs it represents and will become stronger advocates for your mission. Understanding the budget enables the board to make sound financial decisions based on anticipated revenue and expected expenses.
Board members have the responsibility to approve – or not approve – an organization’s budget annually. Some will do so without understanding it. And those decisions have consequences.
I agree with Hildy Gottlieb in her article “The Dirty Little Secret of NonProfit Boards” in which she commented “most people would agree that it is bad policy to allow individuals to make decisions about things they do not understand. Yet every day, board members make countless decisions without understanding the financial ramifications of those decisions.”
A sound understanding of your financial statements equips your board with information and confidence. If your board gets queasy when they review your financial statements, invite your CFO to visit with your board. It’s not a mystery, or a secret. Training can instill confidence and that positively impacts your organization.
If you don’t understand your organization’s numbers, call me and let’s talk.