What Does a Budget Really Mean?

For a variety of reasons, I’m currently in the midst of revising and reformatting Reach, Inc.’s budget. For me, this process brought up two important questions:

  • Why do we treat budgets like rule books when they are really planning documents?
  • Why do we think so negatively about any money not spent on programs?
With regard to the first question, it seems that it’s a huge mistake to approach budgeting from a knowledge perspective rather than a learning perspective. While we hope the numbers in the budget are educated guesses, they are nonetheless guesses. Nonprofit organizations are expected to use their resources to pursue their mission. It is not possible, at all times, to know exactly what resources will be necessary. Budgets, and later records of actual spending, provide administrators and Boards with the ability to examine whether resources are being used efficiently toward the mission. However, it seems that many organizations fail to look at costs and spending as information from which new knowledge can be drawn. In creating this new budget, I hope that it will begin a conversation with our Board about priorities and choices, but I do not expect to be able to provide accurate predictions of exactly what will be spent in each area.
Moving to the second question, it’s interesting to see how quickly the questions that funders ask force us to think differently about what’s important. Start up organizations, like Reach, are often expected to have higher administrative costs than other nonprofits, due to the investments necessary for building infrastructure. However, it is often stressed that administrative and fundraising costs should be minimized. While this sounds good, it often leads to interesting choices being made. Is it really better to spend $1,000 on a party for program participants (program expense) than to spend that same money on donor management software (fundraising) or training around effective nonprofit management (administrative)? Often, when funders ask about the percentage of funding spent on programs, they are forcing organizations to make short-sighted decisions.
Back to the numbers.
Thanks, as always, for reading.
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