Creative Financial Management :-)

13 08 2015

“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” ~William Feather

One way a leader measures his team (and is measured by his leader) is through adherence to budget.  I don’t hold my teams to certain revenue or expense numbers, because in the nonprofit world, so much of the revenue is dependent on grants, consumer demand, and other volume drivers.  I do, however, manage my team to their operating margin (net income).  This means that if grants don’t come in as budgeted, or volume is below budget, I’m still giving the leader the chance to meet their budgeted net income, through expense reduction.  If we get more than budgeted volume, they have the freedom to hire, assuming the the expense of the hires isn’t more than the revenue they’ll generate.

However, I also encourage my people to be creative about their budget.  One leader might work very hard to show me that their revenue and expense is in line with budget.  Another leader might tell me that they want to over-spend, to increase their Key Performance Indicators (KPI), ultimately driving more revenue than the expense they incur in over-staffing.  These creative ways to look at their financials, and maximizing company value to the community is one of the greatest opportunities that can be given to an individual leader.  That’s managing to the operating margin, and so far, it seems to be a pretty good way of letting my team achieve their vision.  Just one more tool for your leadership tool kit.

Speaking of budgets…

budgettribe

Rubes cartoons used with permission. www.rubescartoons.com

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