Transcript Episode 123 – Participatory Budgeting: How to Create Your Best Budget Yet on The Prosperous Nonprofit

Stephanie Skryzowski: [00:00:00] Hey there. If you’re looking for the 100 degrees of entrepreneurship podcast, you’re in the right place after a hundred amazing episodes, we’re changing things up to serve you the most inspiring content in a fresh new way. Thanks for being here and keep listening.

Welcome to the prosperous nonprofit, the podcast for leaders who are building financially sustainable and impactful nonprofits and changing the world. I’m Stephanie s Kowski, a chief financial Officer and founder, and c e o of 100 Degrees Consulting. My personal mission is to empower leaders to better understand their numbers, to grow their impact and their income.

On this show, we talk to people who are leading the nonprofit sector in new, innovative, disruptive, and entrepreneurial ways, creating organizations that fuel their lives, their hearts, and their communities. Let’s dive in.[00:01:00] 

Hello, dear friends. How are you? I feel like it’s been a little while since I have sat down at the microphone to record for you, and it’s probably because it has been, so y’all probably know. I batched my episodes, meaning over a course of maybe a month or two. I record episodes like four months out, and so that really allows me to focus and focus on podcast stuff and then I.

Not for a little while, and so I have been in a, not focusing on podcast stuff for a little bit now, but I’m back and I am recording right now. I’m getting ready to record a series of what I really feel like are going to be sort of mini courses for you. So I’m really excited because these are topics that are super important for all nonprofit leaders to know and understand, and I’m gonna try to break each of them down in a way that feels really accessible and understandable, and like you could take away a [00:02:00] little bite-sized piece for your organization.

Now, if you have been listening for a while, if you were a fan of a hundred degrees of entrepreneurship. Thank you. I love you so much and so glad you’re still here. Today’s episode. I think it’s actually gonna be a good one for you if you’re a business owner and if you have a team. Now, if you are not a business owner and you don’t have a team, this episode may not be the one for you.

But who knows? You might get something from it. But we’re we’re talking about today is participatory budgeting. What exactly does that mean? I mean, in my eyes, there may be like a more academic definition of this, but when I think about participatory budgeting and the work that I do with my clients in helping their organizations implement these participatory budgeting processes, I really mean this is a collaborative budget process, right?

So at a nonprofit organization, which you’ll probably know, the budget isn’t a big deal. It’s a big task that takes a long time, and oftentimes I’ve seen both [00:03:00] ways, right? I’ve seen it where. The executive director and maybe the finance director create the budget for the entire organization based on how much money was spent last year.

The board approves it. That is that it’s done right. That is not participatory budgeting. I’ve also seen really good examples of organizations where each department head is responsible for the budget for their department. They’re responsible for looking at the financials from last year, from like surveying their team and really thinking about, okay, what is my team gonna need next year?

What resources do we need in order to have the impact that we wanna have? And so I’ve seen really good examples of this as well. So if you’re a business owner, Think about this. If you have a team and you have different people responsible for different pieces of your company, how could they be more active in the budgeting process?

Right? How could they be more active in helping you determine what resources they’re going to need next year? So that’s [00:04:00] really what I mean by participatory budgeting, right? So, We want the process to be inclusive so everyone in the organization feels like their voice is heard because it’s not just about money, right?

This is not about saying, okay, create a budget, and then everybody submits this pie in the sky budget that is completely unattainable, right? You know, if the budget last year was a hundred thousand dollars and they submit, you know, A million dollars worth of expenses as well. It may be unlikely that we’re able to raise that money to be able to spend that much, but that’s not what it’s about.

It’s about giving a framework and giving parameters, and then empowering your team, empowering your leaders to create the budgets on their own. So it’s all about engaging your team. In this decision making process regarding the allocation of financial resources. And so I have seen this happen really, really well.

And so today, in today’s episode, I’m just gonna talk a little bit about what [00:05:00] participatory budgeting is and how you may be able to implement it at your organization. And so, like I said, what’s the concept here? Participatory budgeting. It’s a process that allows staff to have a direct say in how the organizational funds are allocated and spent in their programs or in their departments.

It’s an approach to budgeting that really aims to promote transparency and collaboration throughout the organization versus a top-down approach where someone is just. Handed their budget for the year and has no say and no impact on that whatsoever. So this type of budgeting definitely fosters transparency and trust and accountability, right?

When we all understand how the money is being spent and when we have a say in how the money in our department is allocated, like we’re going to be much more bought in, right? So it fosters transparency. And honestly, you get a better budget out of it, right? Because nobody knows those line items in those departmental budgets better [00:06:00] than the people who are actually running those programs.

And so, I just had this situation. Um, today I came up in a finance committee meeting with a client. There’s this one particular expense that was budgeted incorrectly. So, um, it was paid for in one department, but it was budgeted in another department. And so all of the reports that we were looking at on a monthly basis, one department was over budget and one department was under budget.

And we had to explain it every single time as to why there were. Was this big variance. And so with the participatory budgeting process, things are budgeted where they should be, right? There’s better resource allocation, so you’re gonna get better, more accurate financial reports, and you may even get better program outcomes, right?

Because if you know that you’re constantly underspending in this one program area and maybe even overspending in another, if you make that shift by involving the team, you’ll get better program outcomes, right? Better impact. [00:07:00] And so those are some of the benefits of implementing a participatory budgeting process, right?

Process. So what. Exactly does the process look like? What does it mean? Here’s, first of all, what it does not mean. It does not mean giving your team like carte blanche to submit whatever they want, right? There are parameters. This is not a wishlist. This is not. Every individual person in the entire organization submits a budget, right?

This is strategic, so this is also not a free for all. It’s a really organized process that still includes information sharing and deliberation and proposal development, and maybe some voting, I don’t know, depending on your organization, but it is organized and strategic, and so that’s one of the. Sort of pieces of pushback I get when I talk about using a process like this with budgeting in organizations.

It’s like, oh my gosh, [00:08:00] that sounds like pure chaos, and I get that, but it doesn’t have to be. And I’m kind of, I’m gonna explain exactly why that doesn’t have to be. So what does the process look like? So if we are going to. Decide that this year we are going to do a more participatory budgeting process. So first we need everybody to be bought into the process, right?

And so that’s your executive director and maybe your finance team and other people that are normally involved in the process. We wanna make sure that. Everybody is on board and ready to do this. And sometimes that might mean, you know, scheduling meetings to explain, okay, we’re doing things a little bit differently this year.

What resources do you need? What help do you need to be able to, you know, fill out your budget? Well, because maybe there’s department heads that have never looked at a budget before, that have never created a budget before, and so there may be some education needed. In fact, I’m working on that right now with a client.

We are. First thing that [00:09:00] we’re doing before we’re even putting a single number on a spreadsheet is to talk about what this process looks like, where the gaps might be, and how we can, um, fill those gaps before we can begin the process. Right. So once we kind of have that groundwork laid and everybody understands what we’re doing and has, you know, the relevant training that they need, and I don’t mean like an extensive training course, I just mean okay, if we need to walk a group of people through our financial statements so they understand the way our financials are structured so that they have context when they’re preparing their budgets.

That’s what I mean. So the first thing is to, after we’ve laid this foundation, is to really make sure that we have determined kind of our big picture total, right? So here’s what I’m thinking. What we don’t wanna do, and I’ve said this like six times because it’s super important, what we don’t wanna do is just tell everyone, okay, create a budget, send it back to me by September 1st, and then you’re [00:10:00] getting like all kinds of wild stuff.

And trust me, I’ve made that mistake before and it will happen. You will end up having to slash your budget again and again and again to get back down to what your fundraising, you know, revenue looks like, what your revenue budget looks like. Okay. So the first thing we need to do is determine like, what are our total available funds, right?

How much can we even spend next year? Because likely, Leadership, executive director, a board, whomever, has an idea of what we think we’re going to raise next year, right? And so if we think we’re gonna raise 4 million, uh, but our expenses come back at 6 million because we haven’t given anyone parameters.

That’s like double the work for everybody. Cause we’re just gonna have to do it all over again. So we wanna determine. Our total available funds and if we need to allocate them out between programs or departments or countries or the whatever way your organization is, split up. Let’s do that now. Right.

That could be based on, you know, restricted funding. If you have funds restricted [00:11:00] to certain programs, you may need to split up the expense allocations accordingly. Or, um, you can do it, you can look on, okay, how did we spend our money last year? Or what are our programmatic goals, right? If you are really ramping up your programmatic goals for a particular program, then you probably are gonna need to allocate more resources there, right?

So we wanna think about. First of all, how much money is going to each department? Just again, top level, big picture number. So then we are going to tell that number to each of the department heads, each of the managers, whatever that looks like in your organization, they need to know, okay, this department has a $150,000 expense budget for next year.

So once that conversation is had with each manager as to what their total allocation is, that manager is then going to their. Team and usually through a number of meetings, [00:12:00] um, really discussing with the team, okay, here’s what we have to allocate for next year. Um, what are our program priorities? What do we want to do?

What are our programmatic goals? Our impact goals? And that is discussed as a team, right? And so we wanna get, uh, all on the same page programmatically. You know, when we’re talking about our impact, what do we actually wanna do next year, right? And that may need to make sure that it’s aligned with the strategic plan.

Hopefully you have a strategic plan, um, that has some of this included, but we wanna make sure that it’s aligned with the strategic plan. So pull that baby out, that binder off the shelf and think about exactly what you wanna do, what you need to get done. And then the actual budget is put together, right?

So this can happen in a number of different ways. Sometimes the department head or the manager is doing it themselves. Um, sometimes they’re sitting with the finance director and doing it with the finance director because maybe they feel a little bit less [00:13:00] comfortable with the numbers. Whatever that looks like.

Um, they are putting together. Their budget for their department based on the input from the team. Right, and I will just pause here and say too, at the beginning, the finance director is usually sending out templates to everybody that will be filling in a budget. Because what I have also learned the hard way is if we don’t send a template, You’re going to get back 15 different spreadsheets that all look differently.

Some of them use a lot of color and a lot of fonts and a lot of things and cells and formulas that really don’t make sense. So, uh, then that becomes really fun to compile to one organizational budget. So what you’ll wanna do is give everybody a template that looks exactly the same, that’s gonna make your job as the finance director or, um, or make the job of the finance director.

That much more straightforward so that we can really analyze the budget, right? So send everybody a template that all looks exactly the same, and so it’s very clear what information you need from them. Okay, so we’ve [00:14:00] already sent them their template, then they’re gonna send their budgets back into us. I say us cuz it’s usually the finance director that receives all of the budgets back in.

I am then compiling them into one sort of global budget, one organization wide budget. And usually I’m breaking down the different programs. So you can see both at the detailed level as well as at the higher, you know, global level of the organization. And I just mean like, Everything all included, even if your organization is not, um, does not work abroad.

Right. I just mean global, like the whole organization. And so then that is compiled into the sort of final budget draft that’s then, you know, discussed with leadership, um, presented to the board for approval and so, Then the final step, what we can’t forget is after those budgets are approved, we’re gonna bring it all the way back to the entire team, right?

Once the budget is approved, we wanna share with the team, Hey, this is your budget. This is what [00:15:00] got approved. Both on a high level as well as on a programmatic level, right? So that same department head. Who went to their team and asked for feedback, and asked for input on the budget and the programs and what we’re gonna be doing next year now is going to share the results of that.

And I think that is so freaking important because how many times, okay, I have a little aside here. How many times have you filled out a survey for somebody, for something, and you’ve never seen the results? And you’re like, well, what was the point of that? Right. Or like you asked for my feedback, but then nothing was done.

And so what’s the point of that? So when we ask for our team’s input and their feedback on the budget, we need to show them the final results and give that to them so they understand, you know, maybe there is some, uh, some like dots that have not been connected, right? Maybe there was something that they suggested that didn’t make it into the budget, and that is a fantastic time to talk through, like, what’s going on, what happened?

And not necessarily defend [00:16:00] yourself or you know, defend the organization’s choices, but just keep people in the loop, right? That is what is most important here is the transparency. So, Yeah, so then we’re presenting the budget to the entire team and let’s go forth and implement.

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The final piece I would say is many, uh, accounting software, definitely QuickBooks and I know many others as well, allow you to, um, automate reports. And so what I love is to basically set up budget for actual reports for each department, right? So you’re gonna put your budget into. Your accounting system by program or by however you’ve broken up your budget and you’re gonna be able to run a report on it.

And then that report you can automate and send to the department head so they get it every single month, um, without you having to think about it. I mean, you could do it manually of course, but without you having to think about it, it’s even better. And so the key here, the point is that we are constantly and consistently.

Following up, right? We are not just doing [00:18:00] the budget process and getting people’s feedback and like, you know, presenting the results and okay, that’s that talk to you next year. But they get to see the results of that and the, um, you know, be able to look at their performance and analyze the performance against their budget.

Every single month. So that piece is super important too, is making sure that this is not just a, you know, once a year process, but they see their budget versus actual reports on a regular basis. So that is what the process looks like, and it doesn’t really have to be hard. Right. Hopefully I just simplified that a little bit for you so that it, it feels doable.

Right. So a few. Challenges that I have seen that I will just share with you today so that you are not caught off guard and you are very aware of what challenges may await you is, you know, sometimes there’s limited time to create the budget and. Of course, by [00:19:00] default, um, adding more people makes things take longer, right?

And so you want to be thinking typically about three to four months before the end of your fiscal year is when you wanna start thinking about budgeting. And so, um, when this episode goes live, it will likely be around August. And so you need to be thinking if your fiscal year is January through December, you gotta be thinking right now about.

Getting going on that budget. Right? Um, so that is one challenge, and I know, oh, trust me, do I ever know how tempting it is to be like, you know what, I could do this myself. I’m just gonna do, I could do this myself faster. I’m just gonna do it myself. Oh, trust me, my friends, I know that feeling. But that does not help Transparency.

That does not help buy-in. That does not help engage your team in being part of this process. Right? So it will be worth the extra time, but you definitely wanna start now. So other challenges you may encounter are just getting [00:20:00] buy-in on the decisions that are made, right? Because often I. I shouldn’t say often, like pretty much always, people aren’t always going to agree, right?

Like there are going to be disagreements. We’re not gonna agree on the direction that we’re going, we’re not going to agree on the exact way that we should do things. And that’s okay. And I think that what we need to take away from this is that, you know, Not every single thing that people suggest and people want is going to happen.

I remember one time I led a global participatory budgeting process for a team of well over a hundred. And it was really hard sitting in some of these meetings and getting, you know, pleased to, uh, double our salaries and. Um, increase the, you know, the health insurance package and add this benefit and add that program.

And we really need this and our, our students really need this. And it was so hard because yes, all of those things were legitimately needed. That is [00:21:00] no, there’s no denying that, but we couldn’t do everything right. And as a finance person, I kind of had to be the bearer of bad news and say like, yes. Also we need to stay within this threshold cuz that’s all the money that we have for this year.

But one thing I did that I found really helpful, and I think that the team found helpful as well, was we created a sort of below the line wishlist. And so what I mean is that, On that same exact spreadsheet, the template that I sent that where we were creating our budgets, um, we created those budgets within the threshold that we needed to, but we also included a wishlist below the line.

It was not part of the budget, but it was documented and clear. Here are the other things we really need. We need an additional $500 for transportation for these students. We need another. $8,000 to increase everybody’s salaries by 1% to try and get us closer to, um, you know, [00:22:00] average salaries in this area or whatever it is, right?

So we had this sort of below the line wishlist where if our revenue was exceeding expectations, we could think about. Adding some of these things into the budget, right? So we didn’t have to then think from scratch about like, oh, we’ve got this extra unrestricted grant for a hundred thousand dollars.

What should we do with it? We already had some ideas of what the organization needed and could make decisions quickly and implement quickly. So if you’re feeling some pushback and some obstacles when it comes to not being able to do everything that everybody wants to do, because you’ll probably run into that.

Think about the below the line wishlist. So when I think about what would make this process, this participatory budgeting process successful, here’s some of the things that I thought about and I would really encourage you before you just dive into this process for your [00:23:00] organization. Think about like at the end of this, when the board signs off on the budget and we begin next year, what would feel like this was really.

A success. And so here’s some things that I listed that I have seen in different organizations that I have worked with, make it, you know, feel really successful. So one thing first is that all members of the team feel included and heard in the decision making process. This does not mean that every single one of every person’s ideas are included in the actual budget.

That is not the point here. If that can, we can make that happen. All the better, but it’s most important that everyone feels included and heard in the decision making process. Another thing that would make this successful is that we feel like, and everybody feels like we are actively working to dismantle the innate power structure present in the organization where one party holds all the money and the power.

Right. And I feel like this is a conversation [00:24:00] for another day, but it’s often, you know, The people that are getting paid less working on the ground, working like in the field, so to speak, who are always requesting money from the leadership of the organization, from headquarters, from the board. And so there’s this innate power structure present in the organization where there’s, you know, people that are higher and people that are lower.

And one of those, One of those groups holds all the money and all the power, and it does not feel equitable. And so this process aims to work towards dismantling that power structure. And now it’s not going to eradicate it completely, but it’s working to, it’s aiming to sort of level the field as much as possible.

Okay, so the third thing that makes this successful, the team all has a clear understanding of organizational funding status and capacity. So what I mean by this is that what I have found is [00:25:00] that sometimes those, um, people in the organization who don’t have access to the financial statements and are not on the development team, they have no idea how much money the organization has or most often doesn’t have, right?

They’re often requesting money, requesting to spend funds and. Thinking that there’s just this endless pot of money from which to draw. And in my experience, there’s usually not, right? And so this aims to the participatory budgeting process, aims to lift the veil a little bit and provide more transparency showing, listen, this is what we have the capacity to do this year.

Do we wish we could triple that? Yes, but here’s how much money we actually have as an organization. The fourth thing I think about number four is that everyone’s included in the process and they’re educated on the impact of different choices, right? And so unfortunately, not everything is, um, like automatically a yes.

I know I talk all the time about [00:26:00] scarcity versus abundance and the, you know, having that abundance mindset as a nonprofit. But the reality is that sometimes it’s not a. Yes. And it’s more like we can do this or we can do that. And that’s the reality of our funding, right? This very moment, right? And so really helping the team be able to assess the impact of different choices, right?

If we do this, then that means we can’t do that. If we expand this program, then that means we cannot expand to that one. And I hate that either or, um, dichotomy that black and white, sort of a binary mindset. I don’t like it because I. I always want to say yes and right. Let’s do this and this. We can do it all.

But the reality is that sometimes in the time period that we’re talking about, it’s not possible. And so really understanding the impact of those choices. So, The next thing that makes this successful is that there’s meaningful dialogue on overall strategy, like [00:27:00] big picture, where is the organization going, as well as the details of what’s included in the budget.

Because there’s often, there’s just not that meaningful dialogue, right? Often it’s like, okay, well it sounds like I think the board made this decision, so I guess this is the direction we’re going and I don’t really get it. But like that’s what they said. So here we go. Right? And so we want to have more meaningful dialogue organization-wide on the direction that the organization is going.

And finally, the last thing that would make this process really successful for your organization, and again, for those organizations I’ve helped through this process, is that the teams feel empowered to execute their plans once the budget is approved without a whole bunch of additional layers of approval or changes necessary.

Right? Like if the budget is approved. You do not need to ask like extra permission to spend a hundred dollars on phone cards for the team or whatever it might be, right? If the budget’s approved, the budget is approved and you do not need [00:28:00] extra approval to spend money. Now of course, cashflow not withstanding, we have to make sure we have cash, right?

And if there are major changes, there needs to be approval in place for those. Yes, yes, yes. But, um, the team should be able to execute on their budget without a bunch of red tape, right? That is what is gonna lead them to feel empowered. Because if we say, okay, thanks for creating this amazing budget, now you have to ask me every five seconds that you need to spend $8 on something.

Like, that’s not empowering at all. I’d rather not even have the hassle of building the budget if I still have to ask permission every time I need to swipe my corporate credit card, right? So, That’s it. That is a participatory budgeting process. Like I said, it definitely takes more time. I am not going to lie about that.

It 100% takes more time because there’s more people involved, but I guarantee you the result is going to be so much better, so much stronger, where the entire organization is bought in, and just like think about this [00:29:00] whole, I ha just have this sort of vision instead of like, The executive director and the c e o, kind of like marching together and a bunch of people trailing behind them, sort of leading the way of this organization.

Imagine this whole mass of people all moving together, all at the same speed, all going in the same direction, and all in alignment on the purpose and the mission of the organization. That’s freaking awesome. Like that is beautiful and. You don’t have to be a finance person to be able to participate in this process.

Right? So much of what I just explained to you was discussion, right? Was talking and dialogue and making sure that people, um, their voices are heard. So that’s really what it is. It’s not passing out spreadsheets and formulas to your entire team. So anyway, my friends, I hope this episode was super timely and super helpful.

Again, if you are a January through December fiscal year organization, now is the time when this episode [00:30:00] airs in August. You need to be working on your budget. Okay, friends, I will see you next time. You know we have tons of resources. Over at 100 degrees consulting.com. I think we have a good one for you.

Let’s see, what would be a good one for today’s episode? Cash, hundred degrees consulting.com/cash. Go grab that one. You’ll get a budget template in there that can help you think through this process for your organization. All right, friends. Until next time, I’ll talk to you later. Before you go, I just wanna thank you for being here.

To access our show notes and bonus content, visit 100 degrees podcast.com. That’s 100 degrees podcast.com, and I’ll see you next time.