A key step in your financial planning is ensuring that you are able to draw up a budget that ensures each project and programme is able to pay its own way. Here is a quick Q ‘n’ A that will kick-start your thinking about how to effectively manage your financial planning.
Q:WHAT SHOULD HAPPEN IN A FINANCIAL MANAGEMENT PLANNING PROCESS?
A: During an organisation’s planning process, its leadership and staff decide what an organisation wants and needs to achieve in the coming year. Costs are allocated and a budget is then drawn up by the financial manager, in consultation with the Executive Director and other senior management, reflecting the real costs of all of the planned activities. The key step in the process is ensuring that an organisation has sufficient budget to fund the planned activities.
This budget should receive final approval from the governing board. Budget discussions and budget planning and strategy then continue throughout the fiscal year and these are updated and adjusted according to changing circumstances.
Q: HOW MANY BUDGETS SHOULD A NON-PROFIT ORGANISATION HAVE?
A: An organisation has a number of different costs – direct programme costs and organisational costs. For example, core costs are those basic expenses that an organisation incurs and requires in order to operate, before it can even begin to run programmes. These cover things like staff salaries, building maintenance, marketing, utilities or annual reports.
Organisations then run programmes or projects to deliver specific products and services –such as an early childhood development teacher training programme or nutrition support in community schools. Each programme or project should have its own budget to cover direct programme costs beyond the core costs of an organisation. For example, the marketing costs of the organisation will be in a different budget to the marketing costs for one specific programme. Therefore, any organisation has two budget areas or two types of budgeting focus, and both need to be carefully managed.
Q: HOW CAN WE ENSURE THAT AN ORGANISATION’S CORE COSTS ARE COVERED?
A: The approach to this is simple. Every programme must pay its way in an organisation. This means that every project must make a financial contribution to the general running of an organisation and some of the core costs. This contribution must be reflected explicitly in the programme/project budget. This is the essence of sustainability budgeting. It is an approach which recognises that every project or programme in an organisation must carry an appropriate portion of all the basic costs such as the receptionist, the accounts clerk, the banking fees, the computer network, the annual report and so on. Excluding core costs from a project budget means that either an organisation or another donor would need to subsidise the core expenses incurred by a project.
Q: HOW DOES AN ORGANISATION BUDGET FOR ADDITIONAL COSTS OVER AND ABOVE DIRECT PROGRAMME OR PROJECT EXPENSES?
A: Every project budget has to include the project portion of the costs of:
– the core staff essential to the organisation;
– running the organisation (for example, rental and communications);
– governing the organisation;
– marketing the organisation (to ensure continued support);
– maintenance (building, equipment, furniture) and
– financial management.
These can be added under a line item called “Indirect Costs”. If some of the core costs are already funded by another donor, this may be reflected in the budget as “Funds Raised”. Stand-alone budgets that are in isolation of actual costs are unrealistic and do not benefit the organisation. Rather budget in a manner that realistically tells the story of your organisational need, and prospect for more donors to support your activities if one donor cannot fund all your proposed activities. Alternatively, reduce your activities to fit the resources you have. People are often wary of including these costs to the programme/project budget, however, they are imperative to include as they reflect what a programme really costs an organisation.
Author: Alex O’Donoghue: Development Co-ordinator, Inyathelo: The South Africa Institute for Advancement