It’s that time of year for many of us when we are preparing budgets. What a way to begin a new year!
Money isn’t the goal of your church, nonprofit, or school. But it is a tool – and an important one at that. When we manage our money well, we can accomplish our mission better with it.
When it comes to budgeting, some lessons come easy…some come hard! For many, perhaps most of us, practical financial lessons come hard. We learn by doing – and by making mistakes.
Here are 4 hard-earned lessons about annual budgeting.
#1. Don’t spend more money than you bring in or have promised.
Any church or nonprofit that plans a budget with the expectation that they’ll bring in significantly more money next year than they did last year needs to separate reality from hope. If it ends up that you do receive more money this year, great! But do not plan on it when preparing your budget. Focus on your financial history, pledged promises, earned income, or endowment interest earnings.
#2. If you own your facility, maintain strong and sturdy, not cheap or fancy.
There are 3 ways to spend money on your building:
- Get the cheapest possible materials and workmanship;
- Insist on the latest and greatest of everything; or
- Build and maintain with sturdy, strong, and lasting in mind.
We do the first way when we have limited funds. We do the second way under the guise that our “mission outpost” deserves only the best. But good sense and stewardship of our funds requires the third way.
#3. Anticipate “surprises”.
Most expenses stay relatively the same year after year. We know how to budget for constant expenditures. What can quickly throw the budget into a tail spin is when the boiler goes out in the middle of the winter or the roof starts leaking to the point of having buckets around the building.
Every organization needs a line-item in the budget for “basic” yearly maintenance expenditures. That said, you can only set aside so much on a monthly basis in your budget.
If a deferred maintenance problem arises that is outside the scope of what your budget can handle, you need to consider conducting a capital campaign. A capital campaign is a special one-time appeal, over and above regular giving, to fund a significant capital expenditure. Contributors can fulfill their capital campaign pledge over a 3-year period. In this scenario, you conduct the campaign, get the project done by taking out a construction loan, and paying off the loan with the monies received from the campaign pledges.
#4. Do not hire ahead of growth.
New staff members won’t bring in enough money to cover salaries as a result of growth in an organization. It never works that way. Ever.
Today we need to train volunteers, put them in positions of leadership on a volunteer basis, and only hire after the budget has been well established to handle the cost of a new staff person.
Conclusion
There will always be financial challenges. But when we spend time planning and paying for as much as possible upfront, we pay less, we’re more in control, and we have more money to use for our mission instead of playing catch-up.
The bottom-line:
Separate reality from hope;
- Consultant past performance;
- Be conservative;
· Trust your knowledge and expertise.
As always, feel free to share this post with someone you feel would find value in it. Contact me for a complimentary conversation.
John V. Clark, President/Partner
The James Company
Phone: (815) 353-8997
Email: jclark@jamescompany.com
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