There’s an old saying that the only constant in life is change. Changing leadership at a nonprofit organization can be a time of great opportunity. New leaders bring fresh ideas. However, this can mean shifting priorities and the budgets that accompany them.
Nonprofit financial leaders can help manage some of the uncertainty surrounding leadership changes through smart budgeting practices. These include stabilizing the financial position of essential operations, planning for transition costs, and maintaining flexibility.
Stabilizing Essential Operations
Nonprofit leaders establish organizational strategy and direction. From this basis, budgets and plans are made. When leadership changes, strategy can change too, which means new plans and budgets.
Because times of transition can be turbulent, it is important to bring stability to essential operations. This includes stabilizing core financial fundamentals. Ensure you have a strong cushion to cover operating expenses, such as rent, insurance, and salaries. Budgeting for emergencies is also important, as unforeseen expenses can occur during leadership changes.
One area to pay special attention to when building a stable financial core is new expenses. Try to avoid incurring new expenses during times of leadership changes. These may include adding new staff positions, launching new programs or services, or making major technology investments. Hold everything as steadily as you can until the new leader comes aboard and takes the helm.
Planning for Transition Costs
There’s more to planning transition costs than budgeting for a retirement or going-away party for the old CEO. Although it’s tempting to hurry the search team to find a new leader, it may take some time to find the best person to lead your nonprofit. During that time, an interim or fractional CEO may be required. This can be an unexpected transitional cost.
Another unanticipated transition cost may be search fees. Search fees may include the cost of an executive search firm or travel expenses for candidates who come to your office for in-person interviews. Budget for all anticipated expenses related to filling the leadership vacancy.
Lastly, don’t forget to conduct a compensation review for the leadership position. It may have been quite some time since you benchmarked the compensation for a nonprofit leader in your market and niche. After the benchmarking review, you may need to work with the human resources team to make the salary more competitive to attract the right candidate or adjust the benefits package. Either activity can lead to unexpected costs.
Maintaining Flexibility
Lastly, focus on maintaining flexibility. It’s easier said than done, right? Keeping an open mind and anticipating various scenarios can help you maintain a flexible budgeting approach.
We briefly touched on transitional financial planning—how the position may remain vacant for a while, requiring a fractional or interim CEO, or how a compensation benchmarking study may necessitate raising the salary or benefits package to attract a good candidate. These are great examples of maintaining flexibility during leadership transitions.
Other examples include watching for staff uneasiness with the transition. Staff loyal to the previous leader may be uncertain about their position with the newcomer. Consider how you might approach retention activities and incentives.
Donations may slip during times of transition too. Donors who liked the previous administration’s strategy may wonder if the new leader will do things the same way. They may withhold donations until they can see which direction the organization is headed. You may wish to proactively seek additional revenue sources or cut back on expenses until the transition is complete. This flexible approach also helps build that stable core that is essential to supporting an organization during times of transition.
Change Is Inevitable – Budget Stress Isn’t
Change may be inevitable, but budgetary stress shouldn’t be. A flexible, proactive approach to nonprofit budgeting, focusing on reducing expenses, holding off on new expenses, and planning for some financial uncertainty, is the best way to build a sound budget during the transition to new leadership.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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