Nonprofit’s spending plan should start with test of community needs

Published in the April 27, 2007 edition of Columbus Business First

This is the season when nonprofits are developing their budgets for the next fiscal year.  It is important to view a budget as more than just a set of numbers that tell staff what they can spend. 

Instead, the most effective budgets are seen as plans of action that result from a clear set of goals intended to advance the nonprofit’s mission to serve a community need. 

While this approach to budgeting may seem abstract, it is actually quite similar to what for-profits do routinely.  Most of us are familiar with the following phrases  describing the reality to which for-profit businesses continually adapt:  follow the market, keep up with changing demand, identify consumer preferences. 

The reality to which an effective nonprofit must continually adapt is similar, although the phrases are different:  know the changes in your community, keep up with community need, and stay relevant.

As part of budget preparation, you should reassess the links between your current services, mission, and the community needs they are intended to address. While sometimes this is part of a major strategic planning exercise, every year should include some effort to re-examine its relevance and effectiveness.

What’s the Need?

While a for-profit business is accustomed to adapting to changing consumer demands, nonprofits too often get trapped into preserving a mission that serves an outdated community need.  It is a mistake to assume that community needs don’t change over time.  It is also a mistake to presume that yesterday’s mission must be tomorrow’s mission. 

Be open-minded as you reassess community need and how your mission can adapt to current need.  Sometimes reassessment indicates tweaking your mission and your services; sometimes it indicates your mission may no longer be important or your impact on the mission may no longer be effective. 

When you see the latter situation emerging, you should look at other organizations nearby that address similar missions to see if they are in similar straits.  If they seem to be doing better, there may be continued community demand for and support for the mission.  If so, it may be most effective to consider merging with them or redirecting your resources to match their more current definition and delivery of mission. 

The United Way of America is a timely example of a nonprofit that believes there has been a major change in community need and has made substantial changes in its mission as a result.  In changing its mission, it redefined its role from being passively supportive of the nonprofits’ approach to addressing community needs to a role of determining community needs and influencing how and which nonprofits can best meet those demands. 

The key to this decision was an assessment that community demands had changed from the need for streamlined fundraising to the demands for proof that donated money is used effectively.  To its credit, the United Way adjusted its mission to match its new assessment. 

Still, some may be skeptical that this is an appropriate change.  But the skepticism should be based on the accuracy of the assessment of community need, not on whether it is appropriate to change mission. 

In order to remain relevant a nonprofit must regularly assess the community need it seeks to serve. 

Changing with the times brings the risk of misreading the times.  And major changes bring greater risks. 

United Way’s determination to be responsive is taking a risk.  There is no guarantee its changes will be successful, and there is no guarantee it has made a correct reading of community need.   

Back to the Budget

Regardless of the potential for risk, community need is the reality that should guide strategic decisions.  And the budget should represent the next step in carrying out that strategy. 

As community needs change, the nonprofit should change.  Most often this is tweaking and sometimes it is dramatic.  

While risk must always be weighed against the anticipated benefits of the change, it is important to remember that the status quo also brings its own risks -- the risks of irrelevance, ineffectiveness, or possibly failure. 

What is important is continual vigilance to stay relevant to the needs of the community and the courage to insist that community need be linked to mission, mission to action, and action to accomplishment. 

As you start to prepare next year’s budget, reassess the strength of these three linkages and identify a plan of action and change that best ties your accomplishments to the current needs of the community.

Allen J. Proctor was chief financial officer of Harvard University and is the author of “Linking Mission to Money, Finance for Nonprofit Board Members.”  www.proctorconsulting.org

Copyright 2007. Reprinted with permission, Business First of Columbus Inc.