When interviewing potential clients, I always ask a basic question early in the conversation:

“What’s your annual budget?”

Sometimes I’m talking with staff, or it might be a board member or a volunteer. More often than not, there’s a long pause. I wait a moment, then ask again.

“Last year, how much money did you raise and spend?”

Rather than name a number, people tend to offer explanations. “Well, that’s a complicated question,” they respond, followed by five minutes of organizational history. Others answer, a little sheepishly, “I don’t know.”

To be fair, many people CAN answer the budget question, but a surprising number can’t. This continues to amaze me.

It isn’t a difficult question

Anyone actively engaged with a nonprofit as staff, board, or key volunteer should be able to answer few basic questions when asked.

• What’s the mission? In other words, why does this group exist?
• Why are you involved? Why do you care?
• How can I [the asker of the question] become involved?
• How much does it cost to run the organization and do the work?

Far too many people fumble the third question. (When in doubt, here’s your answer: please make a donation!)

However, the budget question seems to be the most challenging.

Even fundraising staff, who spend their days thinking about money, can miss the larger context. “I’m responsible for raising $250,000,” answers the development director of a mid-sized nonprofit, ignoring other sources of income – fees and earned income, government funding, etc. – generated by other people in other departments.

Add all that money together. That’s the income side of your annual budget.

Why people don’t know

Why is this simple question so hard to answer? Why are so many people unaware of what it costs to run their organizations?

Three possible answers (and feel free to add your own in the comments section below):

• Taboos. There are so many taboos around money and talking about money. Some people – even employees who work at the organization – may feel awkward asking financial questions.
• Training. Most board members (and many staff) aren’t trained to understand the organization’s revenue model, budget details, financial risks and opportunities, etc.
• Trouble. In some organizations, especially those in financial trouble, the leadership may be reluctant to share fiscal information.

Why this number matters

You may be asking, “Who cares? I know the mission, I understand the programs – why must I also know the annual budget?”

If you’re a board member – or if you work with board members – listen up. We can debate all the dimensions of board leadership – strategic planning, program oversight, serving as ambassadors on behalf of the organization, and so on – but one essential aspect is written into the law governing nonprofit organizations:  fiduciary responsibility.

These are big words, and they don’t mean simply approving a budget or signing off on an audit. In a deeper sense, your goal is to integrate financial thinking into every aspect of governance.

If you or your board members don’t know the financial information by heart – if you’re not marinated in the numbers and understand their importance – it’s impossible to exercise that responsibility.

The first number to master is your annual budget.

Dive deeper into the numbers

Once everyone is clear about the annual budget, consider these follow-up questions.

• What’s our income mix? What percentage of our revenue comes from individual donors, grants, events, program fees, etc.?
• What trends are we experiencing? Do we need to change our mix of income? What would make us financially stronger and more resilient?
• What’s our biggest financial risk? How do we manage and mitigate that risk?

Imagine all staff leaders and board members participating in this conversation and addressing these questions. How would that degree of financial literacy change your organization?

One suggestion: When people engage with the numbers, they’re more likely to want to improve those numbers.

And now you can begin your fundraising training.

Want to be more financially literate? Check out Andy’s book with Nancy Wasserman, The Board Member’s Easier-Than-You-Think Guide to Nonprofit Finances.