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Your Budget is Your Friend

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If it’s time to create your budget for the upcoming year, congratulations. Your nonprofit budget is your best friend and the source of direction for all of your operations during the year. I know working on the budget may feel like torture, but it is one of the most important documents to support your nonprofit organization. It can actually be exciting to create.

Here are three reasons the annual budget is your best friend.

 

  1. Budgets provide a view of operations through numbers.

For some, numbers are scary, but budgets don’t need to be. Similar to your personal or home budget, your organization budget creates a guide to manage your finances each month. It lets you project how much income you need for operations during the year and identify the source of that income. For instance, you can list income sources as grants, donations, events, or other fundraising. Depending on your organization, you might project income generated from membership, services, or programs fees. After determining your projections for the year, allocate that income to various expenses needed to operate the nonprofit business. These expenses include salaries and benefits (don’t forget all mandatory employee benefits), rent, supplies, costs associated to operate your programs, services, and insurance and so on. Include as many expense categories as necessary to prevent underestimation of overall expenses. In general, it’s best to estimate income conservatively and estimate expenses generously.

 

  1. Budgets are a working document for financial controls.

Once you create your budget, you have to manage it. Each month the budget should be a part of your financial reports which include your Statement of Activities (Profit and Loss statement), Statement of Financial Position (Balance Sheet) and the Statement of Cash Flow. Compare the amounts you budgeted for each account shown on these statements to the actual monthly amounts to understand your current financial position. Hopefully you’ll meet or exceed your income projections while keeping the expenses in range or lower than projected. You might also get the opposite, that is, less income than projected or higher expenses, but you’ll be able to make adjustments to the budget to keep your operations on path. Your board treasurer and bookkeeper should be your helpers in these areas.

 

  1. Budgets guide the strategic operations of the organization.

Use your nonprofit budget to guide your strategic operations. Having determined the goals that will drive your mission for the year, you now have a projected dollar amount to support those goals. Use the budget and current financial statements to monitor your finances and determine if you can meet the goals or if you need to make adjustments. For example, you might have projected adding another employee position. If you find you’re meeting the projected income goals for the new employee, you can move ahead with that goal. However, if the income is not there (or not foreseeable), you might need to adjust the goal. (This doesn’t mean you can’t get the position filled in some manner. For example, you might seek a volunteer to get the help you need. Sometimes, that person might be the one to help you reach the financial projections for the year.) Another example of how your budget guides your strategic operations occurs when you analyze if you have enough income to manage your programs or services, or if you need to seek more private donations and grants. Your budget can even help you project if a fundraising event is feasible or if you should look for money in a different manner. Reviewing budget results each month lets you know how much you’re spending in each expense category and where you might have enough or need to cut back on expenses.

If you need help in the budgeting process with your best foot forward, here are the following resources:

For smaller nonprofits that are entirely volunteer-run, the Virginia Society of Certified Public Accountants offers this handy guide to help you address the budgeting challenges unique to your organization and resources. Budgeting for Small NPOs

For larger organizations, nonprofit consultant and author Joan Garry outlines an innovative strategy to creating a budget that is meaningful and realistic for all the stakeholders within your organization – board, fundraising staff/volunteers, and program staff/volunteers: https://www.joangarry.com/budgeting-for-nonprofits/

These tips are certainly not all of the uses for your annual budget, but you can see how important the budgeting process is. Like a good friend, treat it well, pay attention to it, and it will be your guide to successful operational planning.

Is it Legal to Have an Ex Officio Director on Your Board?

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Do you have an Ex Officio Director on your board? Do you allow honorary directors on your board but don’t require (or allow) them to vote? If you answered “yes” to either of these questions, then you may be operating out of compliance with an important nuance found in California’s Nonprofit Corporations Code.

Fortunately, there are simple solutions to clear up these issues. Let’s explore the rules and steps to ensure that your organization is in compliance:

Non-voting board members cannot serve on California nonprofit boards.
Gene Takagi states, “any person entitled to attend board meetings without a vote is not a board member at all.” Non-voting board members can lead to confusion (do they count towards a quorum?) and can mislead other board members (do their opinions matter if they can’t vote?).

 To fix it: Move non-voting board members onto an Advisory Committee. Or, if you’d like to extend voting rights to these individuals, review your bylaws to make sure you have room for more board members and revisit the process of electing new board members. Your board can vote to bring them on as regular board of directors. If your bylaws state that non-voting board members are allowed, contact Spokes for a Bylaw Review to correct your bylaws today!

Ex Officio Directors automatically hold a position on your board because of a position that they hold outside of the board.
It’s rare to need Ex Officio Director positions in 501c3s. This position is more common in 501c6s, such as Chambers of Commerce, where the CEO /Executive Director often holds a position on the board. For further clarification, the NEO Law Group outlines many scenarios where this arrangement might make sense. However, if your organization labels non-voting board members as Ex Officio, you’ll want to correct this immediately.

 To fix it: Either (1) move non-voting members onto an Advisory Committee, or (2) invest them with the same voting rights and responsibilities of every other board of director serving your organization. To stay in compliance, ensure that your board policies, bylaws, and culture do not limit the actions of Ex Officio board members.

Honorary Director, Director Emeritus, and Advisory Director are misleading titles.
The term “director” is a legal definition that sets forth duties of care, loyalty, and obedience specifically for board members.

 To fix it: Identify new terms to honor these special advisors in your organization. To stay clear on the roles of your organizational volunteers, be certain not to use the word “director” for anyone who doesn’t serve on your board of directors.  

Advisory Boards are actually Advisory Committees.
Only one board can exist in your organization, and that is the board of directors.

 To fix it: Simply update your bylaws and policies so all advisory bodies are labeled as committees.

Staying in compliance with the Nonprofit Corporations Code is critical to your organization’s success. Your board of directors and advisory committees will function more efficiently once you clarify and adhere to these important regulations. If you have questions about board of directors versus advisory or honorary roles, reach out to Spokes for support at 805-547-2244 or [email protected].

Good Strategies for Bad Board Members

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“Jake” was eager to get involved with his favorite nonprofit’s outreach program, so he jumped at the invitation to become a board member. Once on the board, it became apparent that he had his own agenda: he did not understand the organizational mission and goals, wasn’t prepared at board meetings, and became combative when other directors disagreed with him.

Jake was not a good board member, and something had to be done.

It’s an unfortunate situation to find yourself on a board with a troublesome, obstructive person. Often, organizations invite these good-hearted people onto boards because they have community connections, free time, or are simply passionate about the organizational mission. Many don’t realize that board service is a big job which requires an understanding of legal and governance responsibilities, as well as some leadership skills.

Not every volunteer is a good fit for a nonprofit board of directors, and it can be difficult for these individuals to recognize their own shortcomings. In the article, “12 Reasons Why You Should Gracefully Resign from a Nonprofit Board”, Gene Takagi writes, “failure to meet your duties may be holding back the organization from better advancing its charitable mission and serving its intended beneficiaries.” Jake clearly did not understand his role, and his presence was reducing organizational efficiency.

To reduce the risk of inviting a person to serve on your board who doesn’t understand their role, provide them with a clear job description prior to their start date. This reduces the chances that they will be surprised about time, energy, and resource expectations. You can email Spokes for a board of director job template.

A board needs to operate as a whole unit to accomplish its very important work. When one member shirks their duties, the entire board suffers. There are a few ways to work through board member challenges.

  • Meet 1-1
    If you have a “Jake” who keeps the board in disarray, the board chair, and another executive committee member can use conflict resolution techniques to have a personal conversation with the member to try to understand and alleviate the issues.
  • Use term limits
    If personal life challenges or volunteering fatigue are affecting a board member, board service term limits provide a non-confrontational way to ease ineffective or challenging directors off the board.
  • Look to your bylaws
    Your bylaws should clearly state reasons to remove a board member, such as unexcused absences, unruly behavior, or conflicts of interest. If a director can’t accomplish their duties due to a temporary problem, a short-term leave of absence might be a solution. However, if this is disruptive to board business or causes quorum issues, it might be best to ask the person to resign.

Nonprofit organizations need strong board leadership so organizations can provide crucial services for our community. Spokes members who are eager to learn about board service responsibilities can log in on Spokes website to watch the Best Practices in Nonprofit Management video series. We recommend watching them during board meetings for full participation. These short, accessible videos will ensure that your organization is meeting all federal compliance requirements, achieving the highest standards of responsible governance and operating with full accountability to your donors, clients, and employees.

Keep Your Volunteers Coming Back!

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Spokes would like to thank Rachel Cementina, Spokes faculty and SLO County YMCA Director of Membership and Marketing for guest-writing this article.

Several years ago, a young man contacted our office seeking a last-minute volunteer opportunity. John was required to complete 15 hours before the semester ended. We thought the Cal Poly student would do well at a computer project and quickly set him on his task.

Upon completion of the hours, he was asked how he felt about the experience. John answered, “It was the most boring work ever.” And that was the last we saw of him.

We can learn a lot from our experience with John and use it to keep volunteers coming back in the future:

• John said yes to the hours even before we told him about the project.

Make sure volunteers know in advance what they are signing up for by setting expectations. This means outlining a position description, including the purpose, duties, and skills that are required of the volunteer. A great place to start is at volunteer recruitment – make sure your position descriptions are complete at VolunteerSLO.org!

• We didn’t know how John was motivated.

Besides having appropriate training to get the assigned work done, volunteers also need the motivation. Was John motivated by the achievement of the project, satisfaction of giving back to an organization he was passionate about, or recognition of his hard work and time? On the surface, he may have been motivated by the proof that he completed the volunteer hours, but had we gotten to know him, we likely would have found that he also wanted to feel good about the work he was doing.

• John didn’t understand why his job mattered.

Even though we asked John to complete what he found to be a menial task, he may have found it more fulfilling to know why it mattered. If volunteers understand how their support leads to the greater mission of the organization, they have a better volunteer experience. Let each volunteer know how their efforts are making a difference and how their work contributes to the bigger picture.

When a volunteer knows what they are going to be doing in advance, are appreciated for their work, and can connect it to the “why,” it creates a quality volunteer experience. For more additional resources on Volunteer Retention, check out Energize Inc or chat with your friends at Spokes at (805) 547-2244 or [email protected]

From the Top: Executive Director Performance Evaluations

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Calling all board members! Did you know that evaluating your executive director is a key board responsibility? Evaluations foster clear communication about the boards’ expectations while giving the executive director an opportunity to weigh in on those expectations. Evaluations are also a critical tool for reviewing and setting the executive director’s pay. They open the door for frequent, honest discussions about your organization’s effectiveness and sustainability.

It’s never too late to start
The best time to establish the performance evaluation is before the executive director’s hire date. This way, the board can outline the standards of success and objectives in advance. However, it’s never too late to introduce an annual performance evaluation. Your board may even find that the evaluation results in a happier executive director who finally has a clear understanding of what success looks like to the board of directors.

Improve understanding to resolve conflict
Performance evaluations are also a useful tool to assess organizational failures or navigate conflicts. As HR professional, attorney, and Spokes Board of Director Jim Dorf says, “If the executive director is not achieving their goals, don’t just hope that things will improve. Once performance problems are observed, write everything down. Sit down with the executive director and set an objectively measurable performance improvement plan. Task a board member to assess the progress over agreed-upon intervals.”
Annual performance evaluations establish trust between executive directors and boards. Since executive directors manage day-to-day operations without oversight, board members can be left wondering what’s going on behind the scenes. Performance evaluations offer a safe space to inquire about daily operational strategies.

Keep it professional
It’s important to remember that the goal of an evaluation is to appraise professional performance, not the person. There is a great risk of bias, prejudice, and discriminatory actions when a board judges an executive director based on their personality or other subjective areas. According to 501 Commons, “An annual performance review can only hold the executive responsible for meeting targets, complying with policies, or achieving results that were agreed upon at least a year in advance. This way, the executive has time to organize resources and meet those targets and is given a chance to provide the board with information to indicate if the results and goals have been achieved.”

Make it a priority
To effectively conduct the evaluation, form a 2-3-person committee or task force – they will be responsible for determining the measurement criteria, establishing the formal process, and communicating with the executive director and the rest of the board. Download a checklist, like this one from Blue Avocado. Edit it to reflect your own measurement standards. Prepare to have a strategic discussion about organizational goals that have been set, met, or are pending.

Performance evaluations take time and effort to implement, but your executive director works hard. Your feedback plays a major part in their continued professional development. If you have questions or need supporting resources, feel free to call Spokes at 805-547-2244 or email [email protected].

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