When nonprofit boards struggle, the consequences ripple across the whole organization.

Nonprofit consultant Mandy Pearce recently described the top three dysfunctions she has observed in nonprofit boards:

• Lack of clarity in board roles and responsibilities
• Lack of shared goals for the board and organization
• Lack of accountability for board participation and active engagement

What activity can positively impact all three of these dysfunctions?

Surprisingly, one of the most effective tools for improving board performance isn’t another retreat or training session—it’s the budget process.

The budget process keeps the board engaged year ‘round. Activities include budget development, monitoring and adjustments during the year, and analysis of results to inform future budgets.

Here is how the budgeting process can positively impact the three dysfunctions:

Lack of clarity in board roles and responsibilities…

Michael Batts, CPA, in his book “Nonprofit Financial Oversight,” states “The board of directors of a nonprofit corporation has full and final authority over the affairs of the organization.” He continues,
“Financial oversight is only one aspect…but it’s a big one.”

When the board connects dollars to strategy, it stops being just about spreadsheets and starts being about mission impact.

Lack of shared goals….

The budget flows from the strategic plan and specific goals for the coming year to implement the strategic plan.

The budget process, at its heart, fosters a conversation around the achievement of shared goals.

Lack of accountability….

Budget-to-actual reports may highlight the need for course correction, as in the case of revenue falling short of the targeted amount. Conversely, budget-to-actual reports may reveal a job well done, in which case it’s time to celebrate!

By engaging in conversations around budget-to-actual reports, board members can hold themselves accountable for the financial results they set out to achieve when they approved the annual budget.

Is your board participating in the budget process?

Here are ways you can encourage board participation in the budget process:

• Make participation in the budget process part of your board’s job description. Here’s a sample job description from the Society for Nonprofits that we like for starters.
• Offer training to the board on the budget process. An excellent resource is our Budgeting Pop-Up Community Challenge starting September 15^th which is included with our self-study course, How to Create a Master Operating Budget.
• Plan activities and events to engage board members in the budget process. We cover creating a budget calendar in our self-study course, How to Create a Master Operating Budget.
• Deliver financial information, including budget-to-actual information, in an easy-to-understand dashboard format. We include all the details in our self-study course Dashboard Magic.

Do any of these top three dysfunctions hit home with you?

If so, take heart that you are not alone.

Then take a deep breath and, based on our suggestions above, take a step toward a higher functioning board. By involving board members in the budget process, you can develop a board that is confident and engaged in the future of the organization.

We hope to see  you in our Budgeting Pop-Up Community Challenge starting Monday September 15^th!