Board approval of an annual budget, in advance of the start of the fiscal year, is a best practice that is sometimes overlooked by smaller organizations.  Here are a couple of reasons to adopt this practice for board members and their staff to consider.  Engagement - how can a board feel a greater sense of ownership and responsibility for assisting with revenue generation if they do not set operational expenditure targets?  Accountability - how can a board adequately monitor and evaluate executive performance if a budget is not adopted?  Responsibility - how can the community be asked to rely on and support the desired niche of an organization when it is not clear what or how much an organization is going to try to accomplish in the coming year?  Investment - As a corollary to responsibility, how can a potential funder trust your organization with their hard-earned funds if they are not sure where their investment fits in with the adopted revenue target for a year?  In short, setting the annual budget is a core aspect of planning and therefore at the core of nonprofit governance.

This is a tough message that is broadcast out of concern.  Without financial targets for operational performance, we are saying that we are not really trying to manage or accomplish anything with our organizations; we are just trying to have them.  Perhaps just keeping the doors open is performance enough but where multiple stakeholders, employee livelihood and customer life quality hang in the balance, it behooves a board to budget.  Especially in years of holding steady or thoughtful contraction, approving a budget is the most basic organizational action beyond the setting of the conceptual niche (mission, etc.)  Regardless of the level of evident skill and passion of a chief executive, formal adoption of the budget is the board's job. A caring executive will want partnership and at least a double check on financial assumptions before launching off into yet another fiscal year.

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3.22 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."