It’s likely budget time at an employer or organization near you!!BLOGS, Ken Behr Monday, October 22nd, 2012
Some firms budget better than others and while there are a lot of good things we can say about budgets, budgets are never fun.
While I’ve made a transition from the for-profit side of organizations to the non-profit side, I haven’t been able to escape some responsibility for the budget process.
Budgeting at the large multinational corporation I was employed with was a very exacting process. The controller’s office was constantly aware of both revenues and expenses and about every way performance could be measured; it was measured and measured frequently.
At the same time, the actual time spent by non-finance people working on budgets was minimal. As a manager I was responsible to review and submit my budget for approval; however, the size of my budget was rarely a consideration. We grew our budgets when revenues and the business plan dictated that we had sufficient opportunity to use the resources productively.
This is typically not true in our non-profit organizations. I’ve found the process to be completely different. For years I’ve struggled trying to determine why budgets in non-profits and our churches can be so frustrating and then I finally stumbled on the reason: It has nothing to do with competency as we have some fine financial types and plenty of bean-counters in the nonprofits. The difference is related to the nature of the non-profit and how fundamentally different it is from the for-profit.
I’m not talking about taxes or whether there is stock given to owners. No, the difference between a non-profit and a for-profit is all about revenues and expenditures.
Let’s take a for-profit organization first. Let’s assume we are talking about a pizza shop. In a pizza shop, like all other for-profit companies, there is a direct correlation between the sources of revenue and the expenditure of funds. The pizza shop buys dough, tomato paste, fresh ingredients; hires cooks and delivery employees; invests in ovens, menus, advertising and assorted other things; and rents a building to sell pizzas. All of the revenue that comes into the shop is a result of the sale of their pizzas. Easy!
This is not true for the non-profit. In most non-profits, revenue comes from contributions. In a church, that would be tithes and offerings, and in other non-profits it’s donations. The non-profit, however, needs to determine where to allocate the funds that are received. Often this is a completely subjective process despite being carefully considered. This process is often continually on the agenda through the year and there is a strong and often healthy competition for the limited resources that are provided. Since the needs and the mission of the organization are broad and typically never ending, there is a never-ending desire for additional revenue to meet organizational needs and mission desires.
The vast majority of the non-profit organizations are very careful with expenses, often getting great mileage out of every dollar spent. However, because there are few linkages between successful fund raising and the resourcing of projects and activities, much more effort and thoughtfulness is required on the allocation of the money through the annual budget process.
Ken Behr is an executive pastor at Christ Fellowship, Palm Beach Gardens, FL. www.gochristfellowship.com.