Why Nonprofits Need to Evaluate Their Budgets Every Year

12/14/2008 12:08 PM | Ed Graziano (Administrator)

Why Nonprofits Need to Evaluate Their Budgets Every Year

by Melissa Lagowski
 ACN Member
CEO, Founder and Queen Bee, Big Buzz Idea Group

It’s that time of year when many clients are setting budgets for the year ahead. A budget is a crucial part of planning and execution. But all too often in the nonprofit world, budgets are simply carried over without questioning individual line items or evaluating partnerships. In taking a closer look and applying a forward-thinking, strategic mindset, we’ve helped our clients find areas where their organizations can trim excess spending and make those dollars work harder.

Cost savings and more efficient, effective spending—that’s what we all want, right? To drive home the importance of evaluating budgets, we’ve pulled three real-life scenarios in which conducting a budget evaluation revealed a big opportunity for change. And we’ll tell you how to apply these examples when reviewing your own budget, just in time for 2019 planning:

1. Do Your Research

We recently worked with a new executive director who had inherited a number of resources, including the organization’s budget. While she didn’t have a lot of experience in evaluating a budget, she felt the nonprofit may be overpaying for some services and was savvy enough to recognize that there could be better options available. By doing research, she was able to get a clearer sense of the market and gain an understanding of whether the various services were provided at a fair value.

In many cases, nonprofits do what has always been done, or new leadership simply continues moving forward with a budget they’ve inherited. Sometimes, board members may only know of one option or one perspective, perhaps recommending a friend or someone they know rather than putting in the due diligence to do the research.

Know this: You are not locked in at any price point. Take the time to go over each line item in the budget and question whether there’s a better solution or a way to bundle services. Ask yourself: Do you know the market rate? If not, follow through with research.

As a best practice, we at Big Buzz Idea Group recommend nonprofits reach out for three quotes for each project, service or need. The three quotes must be comparable: Are they serving a similar market or client base? What exact services are they offering? This type of evaluation will give you the information you need to make an informed decision.

Of course, gathering this information and making these decisions takes time. We suggest getting three quotes for one-third of your budget’s line items each year OR for all line items every three years. A three-year cycle gives you time to see the value of your current partnerships, adjust for abnormalities during certain time periods, and grant a little reprieve from conducting a top-to-bottom, in-depth investigation.

2. Be Smart About Outsourcing

One of our nonprofit clients took a hard look at their budget and discovered the organization was working with a number of different companies—a marketing agency, a bookkeeping service, a virtual assistant and an event planner—on top of employing an executive director. After evaluating the role and value of each entity, Big Buzz helped this nonprofit consolidate these various buckets and moved all of these needs to one company. This simple shift allowed the organization to annually save 33 percent of its total operating budget, including savings in benefits and employment taxes.

When it comes down to it, high-quality execution doesn’t have to come at a high price point. It’s about being strategic. For example, do you need both a bookkeeper and an accountant, or can you consolidate those services? Do you have to break up different marketing components, or can you bring all these roles under one core marketing partner?

Also, assess the strengths of your existing staff. In what areas can they tap into their unique expertise and contribute to the organization? From a strategic perspective, outsource where you have a need for capacity—keeping in mind that partnering with fewer companies typically produces the best value—or a need to fill gaps in staffing.

3. Plan With Growth and Goals In Mind

Another client spent a sizable portion of the annual budget on a billboard to promote a key event. This billboard advertisement was a budget line item that automatically carried over year after year. But after taking a closer look at the investment versus the return, this nonprofit realized the billboard wasn’t doing what it needed to do. That is, it wasn’t matching up with the organizational needs and goals.

It’s easy to fall into a reactive mindset, simply carrying the budget over from last year and making a few arbitrary changes. But what if a nonprofit builds its budget, not based on where the organization has been, but on where it’s going? If you set a budget strictly for where your nonprofit is now, that’s where it will remain.

Adopting a growth mindset allows you to look at each part of your spending and ensure that it’s relevant and necessary, both based on where the organization is now and on its goals for the future. If your budget is not helping your nonprofit move toward its goals, how could that spending be allocated more effectively? Forward thinking and a proactive approach will help your nonprofit grow.

Here at Big Buzz, we’re all about complete and total transparency. What does that mean for our client’s budgets? Every line item is open for discussion. Every service provider should offer a fair value and an effective output that meets or exceeds goals. Every partner should make the organization’s needs a priority when expected. If that isn’t happening, now’s the time to make a change.

Your 2019 growth is counting on it.

Editors Note: Article also appears on Big Buzz Idea Group's Blog, found here.

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