Discovering The Other Side Of The Budget

Discovering the Other Side

Earlier this month I was talking with a colleague from my first real leadership assignment. We were on staff together at a church in Omaha, running the student ministry department. We got to laughing about how we operated back then.

We joked that we were like the defense department. Every budget season we marched to the elder board, made our case for resources, and walked away with what we needed to blow things up. We were excellent at inspiring the board to allocate resources. We were also excellent at spending it. Passionate about it, even. However, what we never thought about was where the money was coming from.

Then I became the lead pastor of a new church plant in Arizona. Time to build my first budget and present it to the elder board. No problem. I had done this many times and was basically an expert by now. I did what any resourceful leader does. I found the old budget templates from my previous church, changed the name at the top, and got to work.

That is when I noticed something. There was no income side on my budget form. Every line item was outflow. Salaries, programs, events, ministry expenses, and transportation. Not a single line about where any of it was coming from. Because at my old church, that was somebody else's problem. Now it was mine.

Gulp.

Here is what I have learned over two decades of building budgets with both sides of the equation taken into account.

From a Dream Into a Discipline

In the early days at The Hope Effect we had almost no money, almost no staff, and almost no moving parts. At that point the budget was mostly aspiration. A directional guess at where we were headed and what we needed to raise to get there. It pointed us toward something. That was enough for that season.

Then we grew. We added a few part-time staff. Expanded to multiple locations. New opportunity brought greater complexity. It was at that point the budget stopped being just a compass and started functioning as a guardrail. It kept us focused on our mission. It helped ensure resources were going where we said they needed to go. It protected against the kind of drift and misuse that quietly destroys organizations that never see it coming. That served us well for a few more years.

Then we got more serious about the income side of the budget. We stopped projecting on gut feel or hope and started using real data. Weighted averages. Trend analysis. Donor retention rates. CAGR. (Yeah, I did not know what that meant either.) We started thinking about economic conditions and how they might affect giving behavior. We brought more science into it.

Every year we seem to get better and better at creating a budget that will serve us well for the next twelve months. Are we perfect? Not at all. Are we better? Absolutely.

The Process Is the Most Important Part

Dwight Eisenhower said it better than I can. "Plans are worthless, but planning is everything."

When we go through the budget process we are forced to have conversations about what is important, what we want to accomplish next year, and how that fits into where we are heading long term. The questions we cannot skip are: what are we trying to accomplish next year, and does this budget make that possible? We certainly do not want to fund activity that takes us away from where we want to go.

Even if the budget is not precise, the process of forming it is worth the time and effort. I have freed myself from having to get it exactly right. We do the best we can with what we know and then we adjust. After all, the budget we produce is not sacred. The budget is a guide to serve us, not something we serve.

One Practical Addition

Very early on in the organization, when things were less predictable, we discovered a need for a mid-year check-in. Things were changing so fast in the early days that we were constantly needing to adjust on the fly. After we called a few impromptu meetings to handle these growing pains, we decided to add a standing board meeting in June. This meeting is designed specifically to review the first half of the year and make adjustments based on what is actually happening.

We do not have to wait for the wheels to fall off to course correct, and we do not have to hold off on taking advantage of an opportunity that came after we set the budget. While we are more predictable now thanks to our systems and strategic plan, this mid-year check-in continues to grow in importance as the speed of change in the world keeps increasing.

And One More Thing

My dad was a numbers guy all his life. He spent his career as an auditor for a large tire company. For over fifty years he has been telling me the same thing.

Pay yourself first.

As an organization we have always had reserves. However, as we grew and expanded our spend, our reserves didn’t grow with us. We were spending more, but not setting more aside to keep our reserve percentage the same. We has always “hoped” we would have enough at the end of the year to add to them, but we never did. The mission always had a reason to spend what was there.

Two years ago we put reserves in the budget as a line item. Not just a hope or a desire anymore. We made a commitment to pay ourselves first. Within two budget cycles we made more progress on our six month reserve goal than we had in the previous several years combined.

If it is not in the budget, it is not a priority. It’s more like a wish. Maybe this year is the year your organization adds a line to the budget to build up those reserves. You can thank me, and my dad, later.

A Free Resource

From time to time I get asked about our budget process and I am always happy to share it. If you want a copy of the actual document we use, email me at joe@ngojoe.com with the word "budget" in the subject line and I will send it your way.

I am cheering for you.