Balancing the Mission Checkbook

We’re more than halfway through the year – how’s your budget holding up?

It’s pretty common to review the financial reports for the first six months of the year and notice some clear trends when you compare the actual results for income and expense lines to the budget. Differences between the plan and the results are to be expected, but if the variances are really large, it might be reason to consider a mid-year budget modification. At the very least, big variances are a signal that your process for developing the budget might need some improvement.

Variances from budget are normal, of course, since it’s unlikely that the staff or board of a nonprofit will know with certainty and within a few dollars what each income and expense item will be. Expenses are easier to predict since they are under management’s control (more or less). Income, on the other hand, is harder to predict since there are many different types of income and so many external factors. That is precisely why a good budget process is crucial.

Mid-way through the year is a good test of the reliability and value of the budget process that you use. Signs that you have problems with budgeting are: widespread and inconsistent variances; ignored or excused materials variances; accounting problems that don’t allow you to monitor actual compared to budget; or flawed significant assumptions.

One budget problem that can rear its head at this point in the year is when budgets for either grants or contributions were plugged in when the budget was created. It feels good in December when a balanced budget is approved, but it really hurts in July when you see that balanced budget evaporate because the numbers were made up.

If you look at the mid-year financial report and see big differences between budget and actual and you want to avoid repeating this problem next year, start thinking about how to get everyone committed to having a reliable, useful budget. Some of the reasons budgets fail are:

• Lack of support for the budget development
• Weak or undeveloped assumptions, especially for income items
• Lack of oversight of initial decisions and priorities
• No buy-in from program staff who will be responsible for the budget
• No input from development staff about realistic fundraising goals
• Starting at the last minute and rushing to get the budget completed
• Emphasis on minor details rather than macro factors (good numbers for telephone expense but no attention to changes in funder guidelines or contract terms)
• Lack of accountability

How do I develop a good budget? Just do the opposite of everything on the above list. Another resource is an article we wrote in the style of the troubleshooting guide at the back of your DVD manual – Troubleshooting Your Budget.

Where do you turn when you get sick? I don’t hesitate to visit our clinic, make an appointment for diagnosis and treatment, knowing the bill is paid by an invisible system courtesy of our good health insurance plan. What if my family didn’t have this insurance, or if our clinic wouldn’t accept our plan? Fortunately, we could call one of Minnesota’s 16 community health clinics (CHC) and receive high quality, appropriate care. Last night I attended an event hosted by the Minnesota Association of Community Health Centers celebrating National Health Center Week and the importance of community health centers (CHC) in Minnesota. The 16 centers in the state served 190,000 patients last year and health center board members, staff and other supports gathered to celebrate their success. At least 51 percent of CHC board members must be patients at the clinic, assuring a strong voice for the community.

The work we do at Nonprofits Assistance Fund (NAF) is rich in variety since we work with Minnesota nonprofits in all fields – social services, housing, arts, education, and on and on. A few months ago I wrote about our experience working with charter schools and the expertise we have developed in that part of the nonprofit world. Through our Minnesota Primary Care loan fund, we have also developed expertise in working with community health centers.

While their budgets have grown, clinics are constantly under financial stress because of the complex and changing system of payment, reimbursement and grant funds on which they rely. CHCs serve people who may not otherwise have access to quality medical or dental services because they are uninsured or seriously underinsured. Many patients at CHCs are covered by public health care programs (including Medicaid and Minnesota Care) and can also receive grants from both federal and state agencies that support health and human service programs. The number of uninsured patients has been increasing by almost eight percent each year, and the costs of providing quality care are magnified by the severe or chronic conditions faced by patients who have not had consistent access to care. Additional costs are often needed as well, including translators and health care educators to serve very diverse patients.

Most of our work with clinics has been for lending to help with cash flow shortfalls caused by processing time and delays of reimbursements from a web of public programs and the high costs of facilities, equipment and medical supplies. When most nonprofits prepare cash flow projections – which we always encourage – they have a pretty good idea of when their grants and contract funds will be received. Some of the payments received by clinics have been delayed for more than a year while they work through reporting, documentation and reconciling overlapping programs and their requirements. That has made cash flow management more challenging then ever. Fortunately, recent changes in processing and payment in Minnesota has eased some of the difficulties – at least for the time being. As we learn in every field of nonprofit service, the needs in the community are growing, financial resources are limited and there is much work to be done.

Our lending and financial management assistance for clinics has been supported by capital funds and grants from the Robert Wood Johnson Foundation and has been in partnership with The Minnesota Department of Health’s Office of Rural Health and Primary Care . The ORHPC provides a variety of research, information and grant programs. Read their recent overview of these safety net clinics in the ORHPC Summer 2007 Newsletter. We recently issued a report about this work, Patient Capital: Minnesota Primary Care Loan Fund 10-Year Report