Efficient financial management is essential for the growth of any organization. One important way to manage the finances of your NGO is to have a timely, comprehensive mechanism for your budget cycle. In implementing the budget for your NGO, many questions come in to play, and many times we are encountered with different notions about our budgeting habit. In this resource, we help to demystify myths around budgeting, and we hope this is helpful as you navigate your way in this social sector.
1. Budgets cannot be changed
Budgets can be modified to some extent. You can diversify your resources and cut your costs. Of course, take prior permission from your donor agency for this. Donor – implementer (NGO) continuous relationship is very important, especially in terms of keeping them informed on expenses, even when it is not required. It avails the NGO the opportunity to request changes in the earlier estimated budget that was used to receive the grant.
2. Budgets can be developed overnight
Seven out of every nine of our clients said they completed their last four grant proposals on the week of the deadline of the proposal. That’s not healthy. Often in our effort to meet proposal deadlines, we develop budgets overnight. This ends up in poor planning and even rejection of proposals. Always take time to build your budget – your NGO should live with a budget always!
3. Budgets do not have a basis
Budgets are developed based on past experiences, prevailing costs, and research into other related project and program reports. Budgets should be developed on a certain base as they cannot be developed without any basis. In most cases, the basis should be the previous year’s income and expenditure. If applying for a project, look out for the expenses of the project’s previous year, while considering donor funding limitations. For NGOs that are new in the space, we advise them to seek budget resources from other NGOs that might have received funding from the same donor organization.
4. Budget can be developed by a single person
Budget work is a joint exercise.The NGO Executive Director, Finance Officer, and Project or Program Manager are involved in developing a budget. If you are still alone at the NGO, you should seek advice from your advisory council who have expertise in the three job roles. If you already have a vibrant and functioning Board of Trustees, then you can reach out to a member who is relevant for NGO finance. It is teamwork. Involving the entire team is important to producing an effective budget.
5. Budgets have same formats
All budgets do not have the same formats. Different budgets are developed for different purposes. If you are writing a proposal, it is a different budget format and if you are managing an organization, you will have a different budget format. Similarly, different donor agencies have different budget formats.
Budgeting is an important work in any organization, and as an NGO, it’s a serious business. Would you like to share myths you have stumbled upon in your experience working with NGOs? Does the myth above resonate with your social enterprise or NGO? Feel free to share them via the comment box below. The world will be glad you did!