It happens all the time. A private-sector businessperson takes over as board treasurer and meets with the nonprofit staff to go over the new budget. In that meeting, the new treasurer finds that nonprofit accounting is a wee bit different from the for-profit world.
Treasurer: “So you’re projecting $270,000 in foundation and corporate grants. How confident are you about that number?”
Staff: “Well, you never know.”
Treasurer: “You never know what?”
Staff: “You just never know. We may get it all. We may get half of it.”
Treasurer: “And if we only get half of it?”
Staff: “We’ll have to improvise. Or hope something comes in over the transom. It usually does. That’s the only way we balanced the budget this year.”
Treasurer (freaking out): “Over the transom?”
Staff: “Yeah. We joke that we have a secret line item in the income side of our financials: ‘Manna from Heaven’.”
Treasurer: “Isn’t it a little… impractical… to rely on heavenly gifts?”
Staff: “Sure. But we have no choice. We’re writing the next year’s budget now. It’s September. There’s absolutely no guarantee what a funder will do next September.”
Treasurer: “For example?”
Staff: “Our biggest funder used to be Xenon Bank when they were based here in town. But now their headquarters is in Tuscaloosa – no, actually, Madrid. They used to routinely give us a $25,000 grant every year. Now they give us $2,500, and we have to give them so much PR that you’d think it was $2.5 million. And there are rumors that Xenon is being bought once more. We’re collateral damage to corporate mergers.”
Treasurer: “But charitable foundations are more predictable, right?”
Staff: “Not really. Take the Bazinga Foundation, which used to give us $50,000 in operating money. They got a new CEO and a new strategic plan, and now they say they don’t support operations. So we have to re-cast our application to make it look like a new program or a pilot. There’s no way of knowing how they’ll react. And there’s the Razzmatazz Foundation, which won’t make a grant to the same organization more than three years in a row. Last year was Year Three for us. So, actually, we guess it is predictable – predictably grim.”
Treasurer: “How about a special event? A gala? An art auction? A golf tournament?”
Staff: (Inaudible moan and the dull thump of a head hitting rhythmically against a wall.)
Treasurer: “So where’s that ‘over-the-transom’ money coming from?”
Staff: “Individual givers, mostly. If one of our supporters has a big year, we may get a big end-of-year gift. On the other hand, when the stock market drops, donors obsess about their shrinking portfolios, get all nervous, and they give smaller charitable gifts. Not only is individual giving hard to predict, but a lot of factors that affect it are totally out of our control. And there are always bequests, but it’s a little sick to predict those, let alone depend on them.”
Treasurer: “But shouldn’t we cut the budget in anticipation of that money not coming in? Isn’t it imprudent not to?”
Staff: “If we cut the budget, we have three choices. We can reduce services, which hurts our mission, or we can get rid of our development director, which reduces our income, or we can fire support staff, which undermines our efficiency. Eighty percent of our budget is salary and benefits. We can’t really economize simply by buying cheaper paper clips. We’re talking about cutting staff, and we’re already pretty bare bones. The staff is the same size it was five years ago, when we had only 70% as many clients. So, no, we wouldn’t recommend cutting the budget.”
Treasurer: “So you want me to stand behind a budget that may well end up being in the red by six figures?”
Staff: “Well, we wouldn’t put it that way. We prefer to say that in putting together the budget we’re being mission-focused and strategic. That we’re refusing to resort to a scarcity mentality. That we’re being aggressive in our income projections. That we’re guardedly optimistic. That we’ll be monitoring the situation carefully on a month-by-month basis. But… yes, that’s what we’re asking you to do.”
Treasurer: “Meanwhile, your budget, which you’ve told me might be $100,000 or more in the red, balances to the penny.”
Staff: “On paper, sure. It has to. Though we actually want to be in the black. But not by too much – by three or five percent at the most.”
Treasurer: “Why not by ten or twenty percent?”
Staff: “Because if we had too big of a surplus, we wouldn’t appear deserving. Funders would cut us out for the next year so they could redirect their money to where there was more of a perceived need, and then we’d have a budget deficit. At that point other funders would flee because an unbalanced budget is a sign of poor management, and they wouldn’t want to be associated with a failing enterprise. Then we’d be in a downward spiral.”
Treasurer: “Wouldn’t multi-year pledges help out?”
Staff: “Absolutely. But we would have to book all of the gift — including the pledged amount — in Year One. So some people who don’t understand nonprofit accounting would take a glance in Year Two and think our support had dropped precipitously — another signal that we were in trouble, even though it would be just the opposite.”
Treasurer: “So I’m signing off on a budget that has a very good shot of being in the red, with the hope that the budget ends up in the black. But we don’t want it in the black by too much, or it will likely be in the red in the following years. And if we get a multi-year pledge, which is a good thing, some people will misinterpret it as a bad thing?
Staff: “Exactly.”
Treasurer: “Makes all the sense in the world!”
Copyright Alan Cantor 2015. All rights reserved.
14 Comments. Leave new
Hilarious and painfully true. Thanks for posting, Al!
So true! Whoever said “the truth will set you free” never ran a nonprofit.
Great piece, Al. Right on the mark. Wonderful to see you Thursday in VT.
Read your Budget Resolution post. It’s right on the mark and made me laugh. I’m a former corporate accountant running a public health non-profit, and even after 10 years of doing this I still hate the budgeting process when it comes to the discussion of revenue.
SOOOOO on point that it hurts. I once served on a board in which the first meeting I attended was the budget approval meeting. The discussion included this line from the ED, “And this (indicating mid-May) is where we run out of money every year.”
Brilliant, Al! Love the Manna from Heaven. So true! Miss you around on a more regular basis.
Well said and so very true. Thank you, Al!
Thanks for the commentary Al, unfortunately the changing landscape for funding the important work of non-profits makes this story all too familiar. Remarkably, most non-profits seem to catch that wave over the transom and somehow pull it off. Very stressful for all involved.
You got it. We make writing your blog too easy.
Bullseye! Thanks for the morning chuckle.
I took on the budget process at our Church….and, yeah, it feels like you wrote this for me. Almost to the word. Makes me feel better. Thanks!
Ha! Good luck, Guido!
We literally have a line item in the budget for “Manna from Heaven”. I kid you not.
Churches have special dispensation, I suppose.