Transform Your Nonprofit's Budgeting: A Revenue-First Strategy for CFOs
As an experienced Nonprofit CFO, I’ve seen many organizations struggle with budgeting. A common mistake is starting with a wish list of expenses and then placing undue pressure on the fundraising team to meet those financial demands. This approach often results in unrealistic expectations, financial strain, and a misalignment between revenue and operational needs.
The Right Approach: Revenue-Driven Budgeting
Revenue-driven budgeting flips the script by starting with realistic income projections. Here’s how to implement this effective approach:
Collaborate with the Development team: Work closely with your fundraising team to determine a realistic revenue projection for each existing revenue source. A good rule of thumb is to base your budget on numbers you're at least 90% confident you can achieve. This includes reliable commitments from foundations, individuals, and contracts with a strong track record of renewal.
Identify New Funding Sources: While pursuing new funding opportunities is essential, these should be realistic estimates, not just hopeful plugs. The Development department should provide a number they are at least 90% confident in achieving from new sources. For example: The Development team is 90% confident that the organization will be able to raise at least $350,000 from new funding sources in the coming year. This $350,000 “Prospects” figure is then added to the revenue projections.
Set Realistic Expectations: This method sets your development team in the driver’s seat, ensuring they are not overwhelmed by unrealistic targets. It also prevents the temptation of the fundraising team to under-promise and over-deliver. Underestimating budget revenue could result in unnecessary forced cuts in budget expenses, such as reducing staff salaries, to avoid a budget deficit and financial instability.
Avoid the "Grant Fairy" Myth: It’s crucial to understand that grant prospects alone cannot cover your budget deficit. Over-reliance on uncertain grant funding can leave your organization vulnerable to significant shortfalls.
The Right Approach: Revenue-Driven Budgeting
By starting with a realistic revenue projection, nonprofits can create a sustainable budget that aligns with their actual financial capabilities. This approach not only reduces pressure on the fundraising team but also ensures the organization can meet its financial obligations without the distraction of last-minute scrambles or disruptive budget cuts. Remember, a solid budget starts with a solid revenue plan.
About Richard Hetherington, CPA, MBA
Kiwi Partners' outsourced accounting services model has provided Richard Hetherington with the opportunity to provide CFO services to 60+ nonprofits over the past twenty-six years. That equates to A LOT of budgeting.
Richard, a seasoned CFO and thought partner to his clients, joined the Kiwi Partners team in 1999 and has over twenty-six years of experience in legal, financial, and nonprofit organizations. Richard currently performs the CFO role for his clients, including providing oversight and support to Kiwi Partners and the client’s accounting staff.
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