The benefits of 'budgeting for results': Beginning with detailed, specific outcomes when building the budget can help not-for-profits attract impact-driven donors.

Author:Tysiac, Ken

Donors' embrace of the information age has had significant effects on not-for-profit organizations. When requesting support and when reporting on the results of contributions, not-for-profits are finding that a method known as "budgeting for results" can be helpful as they tell their stories to donors and others who want to know more about how funding helps a not-for-profit accomplish its mission. However, budgeting for results is not without challenges.

Donors' desire for more information comes at a time when not-for-profit finance teams are facing many pressing donor issues, which include:

* The aging of the Baby Boom generation.

* The shift in donor behavior as Millennials become more prominent in recruiting efforts.

* New methods of soliciting and receiving donations--and communicating with donors --resulting from new technology.

* Potential fallout from new tax legislation that may decrease the number of donors who receive tax breaks for their donations.

As more than 1.5 million not-for-profits compete for resources in this environment, leaders in the sector are finding that focusing on measurable results provides a way forward for their organizations.

"It's really about how effective you are and what really constitutes success as an organization," said Mark Oster, national managing partner for the Not-for-Profit and Higher Education practices at Grant Thornton LLP. "I'm seeing an evolution in terms of best practices at the organizational level to respond to some of these issues around transparency, trust, and accountability."

Although donors still may check Charity Navigator and other sites that rate not-for-profits' effectiveness, they often are looking for more information than those sites can give them. Donors are turning to the not-for-profits themselves for this information as they seek to support a mission that truly matches their passion. They want to see concrete numbers to ensure that the not-for-profit is following through.

For someone who cares deeply about having underprivileged children learn to read, for example, it's no longer enough for a not-for-profit to have 90% of its donations go toward books that are distributed to these children. The donor wants to understand how many children the organization is serving and to see how the literacy rate among those children is rising as a result of the not-for-profit's activity and the donor's contributions.

This is a more sophisticated arena for donors and not-for-profits, and it creates new opportunities for organizations. First, it gives not-for-profits an opportunity to refine their activities and tell their stories through financial reporting and other means in a way that differentiates them from their competitors. Second, it creates the need for a new approach to budgeting that will allow not-for-profits to produce a measurable impact. This process of budgeting for results requires a new, systematic look at an organization's mission, the metrics that are collected, and the operations that drive the not-for-profit toward those metrics.

"You actually start with the desired result you're trying to get from the work that you're doing," said Carolyn Mollen, CPA, the CFO of not-for-profit leadership network...

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