Is Your Budget a Mystery Novel Your Board Forgot to Read?

Hey Nonprofit Leader, What’s Keeping You Awake at Night?

When I first started Desert Best Friend’s Closet, our first-year budget was... drumroll, please... $1,500. How did we pull that off? Simple: three Board members (including yours truly) chipped in $500 each. Voila—an organization was born.

The next year, we more than doubled our budget to $3,200. I was thrilled. I strutted around like I was CFO of a Fortune 500 company. Ah, the sweet, blissful naivete of a brand-new nonprofit founder. I have learned a lot since then. (Spoiler alert: money doesn’t grow on grant trees.)

Fast forward to today, where I participate in a cohort of Executive Directors—a sort of group therapy for the nonprofit weary. We swap resources, strategies, and occasionally pass around a communal box of tissues. Because let’s be honest: EDs can’t vent to their Boards (who are often the source of their insomnia) and griping to staff isn’t exactly leadership best practice. Hence, the need for a safe space.

During one of these sessions, Angelina Coe, the fantastic ED of Shelter From the Storm, dropped a truth bomb that stuck with me. She talked about providing her Board with information and tools to help them better understand a nonprofit budget.

So, What IS a Budget Anyway?

A budget is basically a nonprofit’s wish list—except written in numbers, blessed by realism, and (hopefully) rooted in strategy. It’s a financial projection: how much money you think you'll bring in (revenue) and how much you'll need to spend (expenses) over a certain time frame (usually a fiscal year).

A good budget tells a story: where you want to go, what it'll cost to get there, and what happens if your fairy godmother (also known as your major donors) don’t show up on time.

Main Ingredients of a Budget (No Cooking Required):

Income Sources:

• Grants

• Donations (individuals, businesses, events)

• Government contracts

• Program fees

• In-kind donations (free stuff counts!)

When reviewing the budget, Board members should approach it with a healthy dose of curiosity—and maybe a dash of skepticism. First, they should ask: Are the income sources truly confirmed, or are we pinning our hopes on promises that might never materialize? It’s one thing to project revenue; it’s another thing entirely to have it firmly committed.

Next, they should look at the diversity of revenue streams. Is our funding coming from a balanced mix of sources, or are we riding one very fragile horse? Depending too heavily on a single grant, donor, or event can leave an organization vulnerable if that support suddenly disappears.

Finally, Board members should make sure that any grants factored into the budget are understood in full. Are the grant deadlines and conditions crystal clear? Missing a deadline or misunderstanding a grant requirement could mean forfeiting critical funds, throwing off the entire financial plan.

In short, Board members should always read the budget with a critical eye—looking beyond the numbers to the realities behind them.

Expenses:

• Personnel (your awesome team’s salaries and benefits)

• Program costs (supplies, trainings, client services)

• Operations (rent, utilities, insurance, printer paper no one can find)

• Administrative costs (accounting, legal, IT support)

• Fundraising expenses (because events don’t throw themselves)

When reviewing the expense side of the budget, Board members have a critical role to play in making sure the organization stays true to its purpose—and doesn't drift off course. They should start by asking: Are we spending our money in ways that directly support our mission? Every dollar should be a reflection of what the organization stands for, not just what seems convenient or popular at the moment.

Next, it’s important to take a hard look at staffing costs. Are salaries and benefits realistic and sustainable, or are we dreaming bigger than our bank account allows? A great team is essential, but compensation needs to align with both the organization's means and market standards.

Finally, Board members should check on the administrative costs. Are our overhead expenses within a healthy range—typically between 10 to 25 percent of the budget? Too high, and it may raise red flags for funders; too low, and it might mean the organization is starving its infrastructure.

In short, a good Board member doesn’t just glance at the numbers—they ask the right questions to make sure the organization is mission-focused, financially healthy, and built to last.

How to Read a Budget (Without Needing a Translator):

Category     Budgeted Amount      Actual (YTD)         Variance

Donations                $50,000               $30,000                 -$20,000

Salaries                 $100,000             $75,000                 -$25,000

Quick decoder:

• YTD = Year to Date

• Budgeted Amount = What we hoped for

• Actual (YTD) = What actually happened

• Variance = How far off reality is from the dream

Negative income variance = Uh-oh, less money than we thought.

Positive expense variance = Hey, we spent less than budgeted! High five!

There are a few key questions that should keep Board members up at night—but in the good, “I care deeply about this organization” kind of way. First, they should be asking: Are our fundraising efforts actually on track, or are we slowly sinking into financial quicksand? It’s easy to feel reassured by projections on paper, but reality often tells a different story.

Next, it’s essential to assess spending habits. Are we spending more than we're bringing in? If the math doesn’t add up, it’s time for a serious conversation—before the accountants start reaching for smelling salts.

Board members also need to focus on impact: Are we investing in mission-critical programs, or getting sidetracked by shiny, nonessential projects? Every dollar should move the mission forward.

And then there’s the big, practical question: Can we even keep the lights on next month? Cash flow isn’t glamorous, but it’s absolutely vital.

Finally, in the spirit of being prepared (and sleeping a little easier), Board members must ask: What’s our Plan B if that big grant we’re counting on disappears faster than a magician’s rabbit? Hoping for the best is fine; planning for the worst is smarter.

In short, staying financially vigilant isn’t just good stewardship—it’s essential leadership.

Final Pro Tip:Budgets are not written in stone. They're living documents. Review them often, update them when necessary, and treat them like your organization's financial GPS. (Because nobody likes driving off a cliff.)