Does a budget really have to balance?

To some, that might seem like a simple, beginner’s question.

People who have written a lot of grant applications know the answer is yes, but sometimes wonder why that is.

To most funders, a budget that doesn’t balance is like….

Did that sentence seem incomplete? Did it leave you in mid-thought? Well, that’s how a funder feels when seeing a budget that doesn’t balance. Simply put, an unbalanced budget is an incomplete thought.

Remember, a budget is a plan; your actual financials that are produced at the end of the year may show an excess or a deficit based upon what actually happened during the year. But as a plan, a budget feels incomplete if it doesn’t balance.

The reason this is so is that there are several things that an unbalanced budget might be saying. For example, say a budget shows $100,000 in expenses, but only $90,000 of income. That raises a question about where the other $10,000 is going to come from. Do you have a plan for raising that money? If so, what is it? And if not, doesn’t that mean you probably won’t see that money coming in?

So if you are really going to have only $90,000 to spend, how is that amount going to be spent? What will you eliminate from the $100,000 budget you turned in?

Similar questions come up even when the stated income is higher than the expenses. Sometimes this situation arises when a budget fully outlines all the "asks" that an organization plans to make. As seasoned fund raisers know, not all requests are going to be granted or granted at level requested. So if you add up all the requests you’ll have a much higher total that what you will actually raise. A good budget form should allow for this, and if not, your budget narrative should note that the difference between the plan and the actual requests. That is to say, one component of your budget might be a plan to raise $200,000 from foundations; but the sum total of all the asks you plan to make may be twice that amount.

Another time this situation arises when the organization actually plans to raise more than it will spend during that budget year. There may be very good reasons for this approach. For example, the board may plan on banking the excess income to be used in the coming year when they expect either a more difficult time garnering support or an increase in the number of people served as the program gets to be known better.

Whatever the reason for this planned excess revenue, it ought to be specified in a budget line item and noted in your budget narrative.

They key point to remember is that a budget is a plan, and like any good plan, it ought to tell a story. In fact, I’m convinced that one reason people struggle with budgets is that they are the ultimate math story problems.

My favorite Gary Larson cartoon is called the Math Phobic’s Nightmare. A man is standing at the Pearly Gates, but St. Peter is telling him that there is one last question before he can enter heaven. The question is something like, "A train leaves Philadelphia at midnight heading west at 60 miles per hour and another train leaves San Francisco at the same time heading east at 50 miles per hour…."

As most of us recall, these are the types of questions that most of us hated to see on math tests back in school; not because the math was so hard, but because of the challenge of figuring out what was the right math for figuring out the problem.

Budgets present the same challenge; figuring out the right questions and making sure you have all the answers.