Balancing the Mission Checkbook

Because that is when the Nile River floods

Nonprofit organizations produce annual budgets for many reasons. The most prominent is to fulfill grant requirements by submitting an annual budget with any request for funding.  The need for resources drives a large majority of financial planning in our sector. One question that rarely gets asked in budgeting is “why 365 days?” Why not 250 or 500? What organizational magic comes with that number?

The annual cycle can be traced back before nonprofit organizations existed or even accounting for that matter. We have annual planning cycles because that is when the Nile river floods. Calendars had to be refined and locked to a year because the Nile river floods once each year, and that event allows agriculture to succeed in Egypt, and successful agriculture (5,000 years ago) meant life and death.

This legacy means your organization has a planning cycle that has as much business relevance to your mission as the release cycle of computer operating systems. It’s not inherently a problem to plan for a year. Government grants may run in annual cycles, funders often run in annual commitments – and so it makes sense to plan how those resources will be used while you can count on them. It also shouldn’t be the end of the planning and monitoring discussion – you may need a shorter and a longer cycle as well.

Is your organization constantly cash-starved but asset rich? Then you need a longer plan to build liquidity than any one budget will provide you. Remember, budgets by themselves are lousy financial plans, so you need a better plan for your organization that fits who you are and the time it takes to do what you need to be a sustainable organization. Your nonprofit may have a particularly lean period (say summer for an after-school program) where the need for planning is far more intense than the rest of the year. Go ahead and create a short-term scenario to meet your immediate needs, and then slacken the financial reins a bit when fall arrives.

The Nonprofit Finance and Sustainability Conference on February 22 has several sessions designed to help nonprofits think beyond the legacy calendar or funding cycles, and toward the long-term changes that will make your organization the most effective change-agent over time. Sessions such as Getting real about reserves or Linking budgets and evaluation are examples where the eventual outcomes you seek aren’t going to be accomplished before our planet swings back to this same spot in its irregular orbit, so acknowledge the inefficient calendar and start building your plans to meet your goals. More importantly, stop having goals that can only be accomplished in that one year. Change takes time, and while some benchmarks can be achieved in a short period, the whole vision is likely going to require commitment for the long haul.