I was involved in a wonderful Latina leadership program several years ago. One of the exercises we did involved analyzing the state budget and making adjustments to address a $3.5 million deficit. Our table groups of 8 women were tasked with creating spending priorities and coming up with a proposal to balance the budget. I was stunned that only 3 of us at the table could read and interpret the budget tables. The majority of the group did not understand that $1.2 million translates to one million, two hundred thousand dollars. It took some discussion, but in the end, everyone got to a point where we could develop our proposal.
For me, the disturbing thing wasn’t the fact that some people didn’t know how to read the budget. It was the implications of large groups of women not being able to engage with budgets. Whether we’re talking about the state budget, an organizational or departmental budget or our own personal budgets, knowing the numbers gives us power.
Nonprofit Quarterly offers a great webinar called Creating High-Functioning Nonprofits: Who Should Have What Financial Information? to help nonprofit leaders expand financial engagement in their organizations. Typically, the board and the executive team are the only people deeply engaged with budgets. This webinar argues for expanding financial awareness and decision making to managers and program directors.
There are three good reasons to engage more staff in financial decisions:
Create Fiscal Agility
How many times have you faced an unexpected budget crisis? A long-term funder changes direction. A building requires an unplanned major renovation. Even without a crisis, budgets need ongoing adjustments so the organization can grow programs or take on new challenges. When only a handful of people are involved in budgeting, the only way to make significant budget changes is through a top-down directive approach. Suddenly post-its become a rare commodity. Staff are asked to do more with less. There may be layoffs.
Some of the organizations I have worked with have much broader fiscal engagement among their staff. In these nonprofits, every manager and some directors have budget awareness, responsibility and in some cases authority. Managers are trained in reading and interpreting budgets and in the factors that impact the organization’s finances. They are required to review budgets regularly and make adjustments to stay on track. They are held responsible for budget items that are under their purview. They are allowed budgetary discretion to test out ideas and implement changes. In these organizations, major budget changes look very different than in a typical nonprofit. Managers know their budgets so well, that they are able to make adjustments quickly and with a clear picture of the impact. Because they are using budgets to drive daily decisions, these managers typically talk with their staff about organizational finances and create a team approach to making money decisions.
Develop Staff Talent
More financial transparency translates into increased staff satisfaction. Secretive, top-down budget cuts make staff members nervous. The more staff understand about where their salaries come from and how they can impact those numbers, the more engaged they are in making smart fiscal decisions. When staff members don’t understand the rationale behind budget choices, they can feel frustrated and underappreciated. I was on a nonprofit board that had significant issues with staff turnover. The organization was 100% donor funded and had a tight budget. After engaging deeply in conversations with staff, the board voted to offer one week paid leave at the end of December. To pay for this, the board, management and staff worked together to come up with some targeted budget cuts and committed to a specific percentage increase in fundraising. Because the staff now understood how the budget came together and had a part in the decision-making, they were much more willing to put in extra work and were happy to make budget cuts where needed.
Turnover is always a concern, but the more financial education a nonprofit provides to staff at multiple levels, the more talent will be available to fill higher level management and executive positions. I’m a big proponent of train-the-trainer models for staff training. Supporting managers in training their staff not only improves capacity, but it grows a pool of talented staff who can more successfully move into new positions when they become available.
Grow Nonprofit Leaders
I was chatting with a lovely young woman at a wedding recently. She was telling me that she worked for a nonprofit briefly after college, but that now she has a “real job” in the corporate sector. I was a bit shocked by this because for me, nonprofits are exciting and innovative places filled with brilliant and passionate people. We need to continue to support our people so that future nonprofit leaders can succeed and it will be impossible for them to do so without solid financial education. I would be happy never to have another nonprofit client ask me to help them figure out how to make ends meet. I want all my clients and all nonprofit leaders to confidently manage their budgets so they can get back to the work that really matters.
Whether you are a nonprofit board member, executive, manager or staff member, I urge you to advocate for expanded financial engagement in your organization. It will change the way you think and work.