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Developing and managing budgets can be a challenging task for NGOs whenever they need to plan a project, write a proposal and implement an activity. Efficient financial management is essential for the growth of any organization. Besides, if you have well-managed and transparent financial system, it also enables donor agencies to gain confidence in your NGO and offer to support to it. However, setting up an efficient financial management system requires a sound understanding of financial practices and principles. Here we are providing a basic guide for NGOs so that they can improve their capacity in developing and managing budgets for their organization and project and contribute towards an overall effective financial system.
Advantages of Effective Financial Management System in NGOs
What is a Budget – for NGOs?
“Budget” is a term that NGOs often come across when they need to plan and implement a project activity. Besides, we also come across this term again and again when we are in the process of developing a proposal. Any donor funding for NGOs is limited and a proper and planned budget is required to convince the donor to access this funding. Donor agencies also have their limitations and they distribute their financial resources evenly amongst NGOs based not only on their project plans but also according to the budget they present.
Budget, in simple terms, means a document where you specify how much money you are going to spend (in other words, expenditure), especially if your organization has received grants. In some cases, as in businesses, budgets can also include the money that the organization is going to generate or “income.” The latter is important for all NGOs now because managing any organization, including an NGO do not mean just spending – we also need to look at how costs can be covered and money can be saved for other activities.
In another sense, budget is all about planning your expenses and saving your costs.
What should not be done with a Budget – for NGOs?
We have read about what NGOs can do with a budget: manage organizational expenses and income, plan project activities, fulfill donor expectations and also work towards long-term sustainability of the organization.
Now we try to understand the essential things that should not be done with a budget. For example, we tend to believe that a budget submitted to a donor agency cannot be changed. Practically speaking, this is not true to some extent. Budgets can be changed, but in many cases, it is required to take prior permission from the concerned donor agency.
Myths about Budgets clarified:
“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.
“Budgets can be developed overnight”
Often in our effort to meet proposal deadlines, we develop budgets overnight. This ends up in poor planning and even rejection of proposal. Always take time to build your budget – your NGO should live with a budget always!
“Budgets do not have a basis”
Budgets should be developed on a certain base. 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. Donor funding limitation to be also considered
“Budget can be developed by a single person”
Budget work is a joint exercise. It is a team work. Involving the entire team is important to produce an effective budget.
“Budgets have same formats”
All budgets do not have same formats. Different budgets are developed for different purposes. If you are writing a proposal, it is a different budget format and if you managing an organization, you will have a different budget format. Similarly, different donor agencies have different budget formats
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