Cutting the budget without hitting an artery

Michelle Speas
Michelle Speas

Michelle Speas

Given the anemic economic environment, nonprofits need to keep accountability and transparency in mind as they decide what to cut – and not cut – from their budgets.

Long-term organizational survival in this economic environment is rooted in the trust the public has in your good name. How are you stewarding that trust?

Are you protecting your name and your brand? Which leaders in your organization are holders of the trust? Are you able to answer the question, “Why should our donors trust us with their gifts?”

With stewardship of that trust as a backdrop, nonprofits should make budget allocations with the goal of moving the organization and its mission forward.

Therefore, reinvesting or reallocating resources among budget items should be done in way that fuels growth and creates forward progress.

When contemplating budget cuts, what deserves a second look?

First, too many organizations have reduced the effectiveness of their development departments by freezing open positions or completely eliminating positions.

The development office consists of the very people who work closest with our donors and who have their trust.

Development budgets are fair game, but not at the expense of eliminating the caretakers of your trust and brand.

Second, are you spending dollars on unchecked office-supply orders, unnecessary travel and expenses, and excessive salaries and raises for executive directors and senior personnel?

Yes, I said it, and I’ve been a CEO. But how can we justify executive salary increases while our frontline staff, and the average teacher in North Carolina, have not received a raise in years?

All raises need to balanced and thought through with 100 percent buy-in from the board of directors.

One board member commented off the record that they “were shocked” to learn the CEO’s salary increased considering the overall financial condition of the organization.

If you are a CEO and make above $50,000, your salary and benefits are public information. Your board members may not be the only people checking you out.

An executive director of an international relief agency shared, “I spend every dollar as if it’s my own personal money. That’s how I have to make every decision now. I agonize. I pray. This is not my money, and too many organizations have lost the public’s trust thinking they are entitled to spend as they like. I am accountable to our donors at every level.”

A marketing director with a health and human services organization with over 150 employees remarked, “I tend to err on the side of being cautious with dollars. Personally, as a marketing director, if I get something really glossy in the mail, it means either they have a very healthy marketing budget or they are overspending. One way I have saved dollars in my budget is to bring a lot of production in house.”

Are you transparent? How many of these questions are you able to answer?

  • Is your organization listed on the IRS list of tax exempt organizations?
  • Have you updated your organizational and financial data on GuideStar?
  • Are you rated by Charity Navigator, the watchdog agency that rates 501(c)3 organizations based on their financial efficiency and ratio of overhead expenses to the overall budget?
  • Do you post your 990 on your website?
  • Do you know what the Sarbanes-Oxley Act is?

The bottom line is, as one executive director said recently, “we need to keep in mind to not cut back on anything that is helping move us forward. I would never cut back on development. We are surviving by cutting out any excess we can find. We were going to hire a consultant for a board retreat, and we still are, but we are reducing what we are going to spend. We are renegotiating our rent.  Anything we can do.”

Michelle Speas, MA, CFRE, is president of the NonProfit Collaborative, a Advance, N.C.-based cooperative of nonprofit consultants.

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