Financial resources for extraordinary governance: Part 2
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.
Building trust, and its importance to raising sufficient revenue to achieve organizational mission was the key topic in the Michigan State University Extension article, Financial resources for extraordinary governance: Part 1.
Raising the necessary funds for operations is something virtually all boards think about. The day-to-day expenses are pretty obvious. Extraordinary governance requires the board to go beyond that, to plan appropriate reserves for times when income is low, or when seasonal expenditures are high.
Capital expenditures must be included in a budget. This might take the form of charging each department for the use of an asset (building space, computer services, etc.) in order to accumulate money in a fund for future replacement. A capital budget may also be a separate budget with special revenue sources to fund specific capital purchases.
Capital assets such as buildings and equipment also require maintenance, which must be included in the budgeting process. Unfortunately, boards often consider delaying maintenance when funds are tight. Maintenance can be skipped for short periods of time, but the life expectancy of buildings and equipment is often shortened by doing so.
Many nonprofits and governments rely on grant funding to finance programs. Grants can be a valuable source of revenue. There are some potential downsides, however. Many grants come with restrictions on the use of grant dollars for administrative costs. Boards must consider whether their other revenue streams can support the administrative costs of the grant funded projects. Grants also might provide a tempting source of funds which steers an organization away from its mission.
In addition, many grants today are time-limited, with the expectation by either grantors or recipients of the services that the program will continue after the grant funding expires. Before accepting such grants, boards need to determine whether it is likely that they can continue funding the service. Many boards have decided they will discontinue such services if, or when, the grant funding ends. Sometimes a short burst of activity on a project that is grant funded for a short time and then ends can do more damage than good, or raises expectations which are not met. Boards need to weigh the long-term benefits and costs of short term activities before deciding to accept grant funding.
Financial resources are critical to achieving the mission of an organization. Successful organizations seek the necessary funds to accomplish their mission, and are careful to focus their efforts and dollars on their mission, often to the exclusion of other opportunities that may come along.