A budget that is consistent with the proposal narrative justifies all expenses. A budget is not only the key element of getting future funding but also a sign that you are a transparent nonprofit. Without a budget, donors won’t know how much to give you. The expenses section is closely studied by potential givers. This is because they want to see what your plans are for spending their money.
In 2013 Idasa (Institute for Democracy in Africa.) closed its doors owing to lack of funding. A liquidation order was granted by the South African High Court. Court papers revealed that Idasa had accumulated losses amounting to R26 million. At some point, directors believed that the NGO would raise the projected donations of R114 million but this did not materialize.
On a paper published by Transformer in 2011,an expert pointed out that during Apartheid years, foreign donors channeled funds in a clandestine manner to NGOs aiming to eradicate apartheid. A reason why a lack of transparency is still deeply rooted in many NGOs. This may have contributed to the closure of Idasa.
The Daily Maverick reported that the management of South African NGOs is under-scrutinized. A civil society funding expert also said: “There are major questions that should be asked about the way in which NGOs are run, their financial management, and their accountability.”
How can you show donors that you will spend donations responsibly? You might need to consider a budget as a guide to spending. To achieve this, you will need a system that allocates expenditure to appropriate budget lines.
Let’s look at this 5 important budget expenses.
Tweet this: Remember that a minimum of 10% to 20% of the budget should go towards paying salaries, the rest is for other program expenses.
The first item scrutinized closely by potential donors are salaries. While setting salary scales for your nonprofit staff is difficult, it’s important that set salaries are reasonable. You might consider using indicators like your current economic conditions as your barometer for setting reasonable salaries.
Just make sure that you stick to budgeted salaries. In cases where extra skills are needed, see if you can’t cover those costs with money budgeted for “other expenses”.
Remember that a minimum of 10% to 20% of the budget should go towards paying salaries, the rest is for other program expenses.
Fixed costs like rent can give you a headache. If you feel that the rent you’re currently paying is beyond your means, there’s an option of looking for alternative office space.
Hidden costs like electricity have a way of lending themselves well in rent. This happens when your rent doesn’t include electricity. In countries where demand for electricity exceeds supply, it becomes difficult to budget for electricity rates.
There’s also rent for office equipment like photocopy machines. Some companies find renting machines cheaper than buying. You will need to weigh your options very well beforehand. Just ensure that your proposal reflects that you’re striving to be frugal.
Donors find it hard to accept that nonprofits use funds to raise funds. It’s important that these costs are well reflected in your proposal. While donors understand that you can’t raise extra funds without using funds, indicate this on your proposal.
In case you’re not sure, use your previous year’s books as your indicator. Another important point is: If you exceed your fundraising goals, what will be done with the surplus? This should also be clearly stated in your proposal.
A large part of your surplus should surely go towards addressing your community projects. You’re expected to plan for your community-related costs. This may not be an easy task as community projects are not predictable.
The best to budget for community-related costs would be to base your estimates on the previous year’s expenses.
5.Purchases (Cost of activities.)
Purchases are done by any nonprofit from time to time. We can’t treat purchases as a cost of sales account because NGOs do not operate to make a profit.
According to Mango, a good procurement process ensures that:
- the correct goods or services are purchased,
- the best value for money is achieved,
- the process presents little fraud risks,
- and the process is fast enough to meet program needs.
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Originally posted:By Dumisani Hlatswayo on Nov 30, 2016