From a financial perspective, balancing mission, resources and sustainability are mathematically impossible in the short-run but obtainable if you take a long-term perspective. I remind myself of this fact every time I help organizations begin the process to assemble their next year’s budget.
There are so many contributing factors to consider while assembling the budget. Many of these factors such as mission relevance, strategic positioning, critical partnerships, service to constituents and members, fulfilling donor intent, meeting sponsor expectations, generating public awareness, and such cannot be easily defined in one simple mathematical equation. There is no common denominator for all these factors.
There is a real temptation to use financial equations and link success or failure to budget comparisons and financial reports. We do this because we are used to doing this. Financial reports are prepared on a regular monthly basis, budgets are endlessly discussed and used as a built-in measure of success, and we all watch in anticipation each month as our organizations’ bank and investment accounts drift lower and lower during tough economic times and we hope they will rebound in the near future.
As a case in point; how do you select between two outstanding programs that provide wonderful needed services to the community but burn resources at different rates, have volatile funding bases, and the board is split on which program is the better endearment of their mission. All the mathematicians in the world could not even agree on the variables yet alone build an equation that helps these well-meaning board members select the best program.
There are a few simple truths to hang your hat on. First, you will annually go through the important process to build a budget for the next fiscal year. Second, your organization will generate monthly financial reports and you will track your financial progress and third you will endlessly argue about the rate of success or failure depending on individual points of view. All three of these truths are part of a healthy process to balance mission, resources and sustainability.
This is a fluid process without clear answers. Every organization wants to do more, stabilize their funding sources and grow their net assets. Only one problem it is very hard to do all three at the same time consistently over a period of many years. Daily we must choose between these three factors favoring one over the other as circumstances dictate.
So what is the solution? The solution lies at least through the annual budget building process in compromise and openness to conflict resolution by agreeing to give equal consideration to the importance and connection to mission, availability and reliability of resources and the impact on net assets in the future to see if efforts are sustainable and do not negatively impact the financial health of your organization over the long-run.
The order you consider these factors is important but recognize that the order can and will often change with circumstances that are constantly evolving. Because the budget process of itself is an end point focused on resources and balancing the budget, I believe once a year you stop and go the other way and focus mission first as you consider what programs, activities and support structure is needed to support mission and direction the board has strategically directed staff and management to pursue for next year’s budget.
After you consider connections to mission, you next consider resources to fund these programs and activities. Resources come from one of two broad sources; current in-flows of revenue and support (contributions, membership dues, registrations, grants, etc.) or from the balance sheet (bank and investment accounts if have funds or accounts payable and lines-of-credit if cash funds are short). If funds needed to support programs and activities are in-flowing at the same pace or faster than you are expending them you will find your organization in a sustainable situation and the impact on your net assets and financial health will be either static balanced or growing if funds are in-flowing faster than you are expending.
However, organizations often find themselves building budgets for next year that include a growing level of expenditures for programs, staffing and supporting services while revenue and support in-flows are static or declining. Although an organization might be able to sustain deficit spending in the short-run, it is not sustainable over the long-term especially if the organization has not built up substantial operating reserves.
Mission, resources and sustainability are all critical factors. In the short-run we often make quick decisions to favor one factor over another but in the long-run only balance among these three factors insures long-term financial and organizational health. Every day we are confronted with tough decisions which temporarily force us to favor one factor over another.
One day we must move quickly to meet community needs directly in-line with our mission even if current revenue and support is not available. We are forced to spend out of operating reserves or worse borrow funds. This is not sustainable for very long. Another organization struggles to find meaningful programs that the community wants even though funding is present. Although balance sheet assets will grow if they are not spending funds on programs as fast as they are in-flowing this also not sustainable over time as funders and donors will quickly become disillusioned and they will stop supporting the organization in the future. In the end we need to find the most missioned based activities to support which we can balance with reliable in-flow of resources bringing us to a sustainable level of operations. Keeping your eyes on this balancing act will allow you to make the best decisions possible as you work through short-term swings between mission and availability of resources.