Financial resources for extraordinary governance: Part 1
While financial resources are critical for governments and nonprofits to accomplish their mission, aligning the resources with the mission and strategic goals is essential to achieving those goals.
We started this series of Michigan State University Extension articles on the ten components of extraordinary governance talking about mission. Mission drives the organization, whether nonprofit or government. It’s no surprise to anyone that organizations need resources to accomplish their mission.
The key to building extraordinary governance is to tie the two together. Mission must be reflected in the acquisition, budgeting and expenditure of those resources. It has been said by many over the years that you can tell what is important to both people and organizations by the way they spend their money. If what we say is our mission is truly our mission, then our spending will demonstrate that.
To accomplish their mission, organizations must budget and spend their resources in ways that are likely to advance that mission.
Both nonprofits and governments differ from businesses in that most of their revenue comes from something other than the sale of products and services. Both often use grant funding, which will be discussed later in detail. Nonprofits depend to a large extent on donations, while governments typically are funded largely by tax revenue.
Trust is a key, and often overlooked, element in fund raising and taxation. Donors give their hard-earned money to an organization to see that organization accomplish certain impacts they value. Citizens do the same through the process of taxation, and when asked to approve additional taxes, they often reject those proposals when they don’t trust their government to spend it wisely or when it is not a priority shard by the electorate. Election results for millage votes in Michigan have a much higher chance of success when tied to a specific program than when the revenue is slated for the general fund, for which boards make the decisions about how to spend it.
Trust is a necessary component of both the giving and taxation processes. Several of the other components of extraordinary governance are closely related to this building of trust. Transparency, accountability, and integrity are all critical elements of building trust. The communication which is part of building partnership with stakeholders is important to building trust. Demonstration of impact also affects the level of trust between organizations and their funding constituents.
The erosion of trust can happen very quickly, while it takes a long-term effort to rebuild trust when it has been lost. Building trust has to be high on the list of priorities for boards that desire to succeed for the long term.
In Financial resources for extraordinary governance: Part 2, we’ll address some specific issues related to funding organizations.