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Springtime Brings Budget Planning for Non-Profits

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Springtime Brings Budget Planning for Non-Profits

By: Karen Greve Milton, Senior Consultant, Danosky & Associates


Spring is here and for non-profit organizations that means financial planning for the upcoming fiscal year should be well underway. Every non-profit organization, regardless of size, should develop and implement a financial plan — an operating budget — for each fiscal year. 

Financial planning is the key to a non-profit’s success and sustainability. A well-developed operating budget allows for future use of limited non-profit resources and focuses on the priority goals and objectives of the organization. Non-profit organizations functioning without an annual budget are operating in the dark and risk being unable to navigate a changing fiscal landscape. Annual budgets shed light on the organization’s financial picture and keep the organization focused on its programmatic purpose as the fiscal year progresses.

Developing the operating budget is a team effort involving board members, staff, volunteers and other stakeholders. If the non-profit organization has paid staff, the responsibility for developing a proposed annual budget for the upcoming fiscal year falls to the staff. Board members have responsibility for reviewing the proposed budget carefully and ultimately approving the budget for the next fiscal year. Where the non-profit entity relies solely on volunteers, the responsibility for developing the annual budget falls to the board’s finance committee members or other volunteer members of the organization.

A non-profit’s annual operating budget serves as a financial management tool for the organization.  It provides a guide to the organization’s financial functioning during the fiscal year. The approved budget allows the board and staff to gauge how the organization is operating during the current 12-month fiscal year and whether adjustments to any financial assumptions included in the budget need to be adjusted. 

In preparing an annual budget for your non-profit, it helps to use a step-by-step checklist of basic steps: 

  1. Set the timeline for budget preparation, review and Board approval.
  2. Agree on the non-profit’s budget goals for the new fiscal year.
  3. Understand the current financial status of the organization.
  4. Use the current and prior fiscal years to forecast financials for the next fiscal year.
  5. Develop an income budget of anticipated revenue from all sources.
  6. Develop an expense budget of all anticipated expenses.
  7. Review the draft budget with the Board Finance Committee.
  8. Obtain full Board approval of the budget.
  9. Implement the budget at the beginning of the new fiscal year.
  10. Monitor the budget throughout the fiscal year and adjust as necessary.

You can find checklists, templates and advice from various associations and entities, such as The National Council of Nonprofits (www.councilofnonprofits.org), and Propel Nonprofits (www.propel.org), among others.  

Good budgeting signals good fiscal health and represents a key component of financial sustainability. The annual operating budget is one of the fundamental building blocks of sound financial management.  Non-profits can use the annual budget as the basis for financial reports to donors, lenders, foundations and government agencies and the new Form 990. See https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/budgeting-nonprofits   

A few recommended tips for getting started: 

  • Set a reasonable timeline several months before the start of the new fiscal year.
  • Identify your income by categories (individual donors, institutional donors, foundations, events, programs, etc)
  • Separate firm expenses (rent, insurance, etc.) from variable expenses
  • Major events/programs and capital projects should have their own budgets
  • Keep fiscal assumptions realistic and note them separately in the budget

Preparing the annual budget should be viewed as an opportunity to review financial priorities, assess the organization’s financial health and forecast for the future. Remember, the operating budget is not “etched in stone,” but constitutes your financial management guide for the fiscal year. It should be reviewed at each Board meeting during the fiscal year and adjusted as necessary.

The next question is whether the annual operating budget needs to be balanced. We’ll address that issue in our next article. Meanwhile, let’s get started on our spring-budgeting for your non-profit. 

Spring 2023 – Principles of Fundraising Certificate Program

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Now in its 15th year, the Principles of Fundraising series of workshops continues to provide high-caliber, basic-skills development in the art and science of fundraising for nonprofits. Created by the Connecticut Chapter of the Association of Fundraising Professionals (AFP), the series provides five introductory-level workshops focusing on the theory and practice of fundraising taught by AFP members who are experts in their respective fields. All sessions will be held virtually online using the Zoom platform.

  • Organizing and Running a Successful Development Program: Wednesday, April 12th (9:00-10:30am)
  • Building a Sustainable Annual Giving Program: Wednesday, April 19th (9:00-10:30am)
  • Grants from Foundations and Corporations: Wednesday, April 26th (9:00-11:00am)
  • Engaging Your Board & Volunteers to Raise Money: Wednesday, May 3rd (9:00-10:30am)
  • The Art of Soliciting Major Gifts: Wednesday, May 10th (9:00-10:30am)

Please register online here: http://www.cvent.com/d/f6q6rg.

When Banks Fail: Board Fiduciary Responsibilities

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When Banks Fail: Board Fiduciary Responsibilities
By Karen Greve Milton, Senior Consultant

Late on the evening of Wednesday, March 8, 2023, a local bank in California, Silicon Valley Bank  (“SVB”), decided to sell its entire $21 billion portfolio of long-term fixed income assets, netting the bank a $2 billion loss.  At the time of the sale, SVB’s total assets exceeded $200 billion. A $2 billion loss against bank assets far exceeding that amount should not cause any concern among the bank’s depositors, right? Wrong.

The actions taken by SVB that fateful Wednesday evening turned out to have a seismic impact on SVB as well as the nation’s banking system. The SVB portfolio sale triggered a mass panic among the bank’s depositors which led to a run on the bank and ultimately, the federal government taking over the bank on March 10. Ultimately, the federal government backstopped SVB depositors with liquid assets over the FDIC-

The implosion of SVB and the recent banking crisis provide a cautionary tale for non-profit boards of directors. In his book, Ten Basic Responsibilities of Nonprofit Boards, Richard T. Ingram writes that boards of directors have a duty to “protect assets and provide financial oversight” for the non-profit organizations entrusted to their care. See Ten Basic Responsibilities of Nonprofit Boards, ch. 7, pp. 51-64.  Generally, boards carry out their fiduciary duties through a finance committee of selected board members. The finance committee ensures that the non-profit’s financial resources are managed appropriately without being subject to undue risk.  See Ingram at pp. 58-59.

The caveat about not subjecting the non-profit’s financial assets to undue risk ties into the issues raised by the March 2023 banking crisis. Under the FDIC, bank deposits — for both individuals and businesses alike—are only ensured up to $250,000. Unlike the federal government’s actions regarding SVB and Signature Bank, deposits in excess of this limit may or may not be recovered in the event of a run on the bank and an ultimate bank failure.

There may be strong business reasons for non-profit organizations to maintain liquidity of financial resources in excess of the FDIC threshold. But board finance committees need to think about the best ways to protect these financial assets within the current FDIC-insured limits. 

I am a member of a non-profit board of directors where I also serve as the organization’s Treasurer. This non-profit has its banking operations headquartered with one of the four largest banks in the country. Last year, due to complaints about the lack of customer service from the organization’s current bank, the finance committee approved a recommendation from the executive director and chief financial officer to move the organization’s banking business to the regional bank where the non-profit’s investments were being managed. The transfer of the bank accounts, for reasons beyond the scope of this article, dragged on for months and still had not occurred at the time of the SVB implosion. 

So, what actions did we take and what actions should a board finance committee take? The good news is that our investment management team reached out to us almost immediately to assure us that our organization’s investment portfolio was safe. We remained in almost daily contact with them throughout the banking crisis.

Secondly, we decided to “pause” the transfer of the organization’s bank accounts to this regional bank until we had the opportunity to re-assess the situation. Ultimately, the executive director and I asked the chief financial officer to research several other community banks near the organization’s offices and provide a recommendation to the finance committee. 

We also checked in with sister organizations to learn how they handled their banking business, including the need to maintain liquid cash in amounts exceeding $250,000. What we learned from our sister organizations reinforced for us the need to maintain bank accounts at multiple banks to satisfy our need to maintain cash amounts in excess of $250,000 and to ensure that all the non-profit’s cash resources were within FDIC protection limits.

Lessons learned from the banking events of March 2023:

  1. Develop and implement a financial plan to manage all the financial assets of the non-profit organization
  2. Engage in strong financial oversight and management of the non-profit’s financial resources. 
  3. Develop, implement, and follow financial policies pertaining to fiscal management and investment of the non-profit’s financial resources
  4. Maintain liquid cash assets in anyone banking institution within the FDIC-insured limits
  5. Consider spreading cash assets in excess of $250,000 among multiple banking institutions
  6. Investigate whether large amounts of cash resources can be invested in investment vehicles that provide both higher rates of return with the ability to liquidate these investments quickly and without penalty
  7. Bank where the non-profit can develop a strong banking relationship with good customer service.  Notwithstanding the SVB implosion, community and regional banks provide firm financial support to non-profit organizations located within their communities
  8. Be proactive about managing the non-profit’s financial resources. Ask questions. Gather information. Take the actions necessary to carry out your fiduciary duty

De-Mystifying Capital Campaigns

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De-Mystifying Capital Campaigns – Spring 2023
By Sharon Danosky, President

Probably nothing entices or scares boards more than the thought of a capital campaign. They are enticing because of the potential inflow of capital. They are frightening because they are unlike other fundraising efforts and require a structure and methodology that are unfamiliar to most boards. It also can be daunting because most development professionals, as skilled and accomplished as they may be, have never undertaken a capital campaign. So it may seem a little like steering a ship without a rudder…but, first things first.


Why do a capital campaign? Capital campaigns are undertaken when there is an urgent compelling need to raise significant funds for a specific purpose:

  • Urgent compelling need: leadership of the organization needs to identify and address one or more critical aspects of their organization in order to continue providing vital services aligned with its mission. This does not mean building reserves for operations or trying to make up for a budget deficit that has occurred over one or many years. It is a need that is forward-looking and visionary.
     
  • Significant funds: the organization needs to raise money above and beyond its annual operating revenue or budgeted revenue
  • Specific purpose: the organization needs to have a compelling purpose for which it is raising these additional funds and a thorough explanation for why it is necessary. This means having a clear vision, something you want to aspire to. In capital campaigns, we often speak in terms of donors giving to lofty visions, not needy organizations.  

How to begin a campaign?

To start a campaign you need to be able to articulate why you are raising funds and how they will be used. That is pulled together in something called a Case for Support (which we will review in an upcoming newsletter). Then you need to perform in-depth donor research and develop a strong prospect pool to support your initiative. 

Selected donors will be interviewed to gauge their interest and provide feedback about the reason you are raising additional money. They will also be asked whether they would be willing to support this campaign and the range of support they might provide, should you move forward. That interview process is called a pre-campaign study or feasibility study.

A feasibility study is usually performed by an independent consultant because of the objectivity it affords and does four things:

  1. Evaluates your organization’s internal readiness to take on a campaign
  2. Tests your case for support and your funding priorities – will donors support it?
  3. Assesses the funding potential – how much money can you raise?
  4. Engages your key donors early in the process.

There is an old adage in fundraising: “If you ask for money you get advise; if you ask for advice you get money”.”  A feasibility study is the ultimate advice-asking methodology.

If the feasibility study goes well – what next?

If the feasibility study demonstrates that you have sufficient support for your initiatives, then the campaign can move forward. The first order of business is to establish a campaign infrastructure which includes setting up a Campaign Cabinet, training your volunteers how to raise funds, drafting gift policies, creating naming opportunities if applicable, developing prospect lists, preparing pledge forms and donor tracking sheets, and solidifying board pledges. You will also want to do some kind of notification to your donors who participated in the feasibility study — they will be your first donors to the campaign. Danosky & Associates prefers to do this with a reception for the feasibility participants either in person or via zoom.

With the above in place – you are ready to enter the Quiet Phase of the campaign where over 60% or more of your funds are raised. This is the quiet, one-on-one solicitation of your donors. No publicity, no fanfare – just personal meetings asking your donors to support your initiative. The quiet phase may last 6-24 months, depending on how many donors there are to solicit.

The public phase is the last phase of the campaign – and some campaigns never go to a public phase because the funds are raised in the quiet phase – which, to me, is a wonderful thing! A public phase is right for a number of organizations, but not for all. At the end of the day – a campaign is about raising significant funds, not about generating publicity. And you don’t need publicity to raise money from your most generous donors – you really just need a compelling vision.

Should We or Shouldn’t We?

The decision to enter into a campaign is really dependent on whether there is an urgent, compelling need. There is no right or wrong time to enter a campaign. In 2008, many campaigns were shut down out of fear of not being able to raise funds. Those that did not shut their campaigns down did very well – a very valuable lesson learned – especially for those who delayed their campaigns. The same fear occurred during the pandemic, but that time most consultants advised against closing down campaigns and pivoted. I launched several campaigns during the pandemic – and all performed beautifully in a virtual kind of way. It really comes down to whether it is the right time for your organization.

One last thought – campaigns require an organization’s full focus. They are time-consuming and intense. They are also exhilarating and can transform an organization in a significant way and build lasting relationships with your donors that can impact your organization for years to come. 

If you are considering entering into a capital campaign, please call Danosky & Associates for a complimentary consultation.

Our Mission

We provide nonprofits the guidance, support and tools necessary to build a better world.

Our Vision

Every nonprofit will have the capacity to fulfill their missions and make the world a better place. 

Who We Are

Danosky & Associates is an action-oriented, results driven consulting firm that builds nonprofit capacity, applied through an equity lens with innovative strategies for an ever-emerging future. 

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