Budgeting for NGOs
Budgeting is a very vital aspect of every activity, this is about working out how much as organization planned its activities and are likely to cost. It is encourage that both program and finance staff should be involved in setting budgets which is called budgeting process, to create a foundation for good coordination during spending and budget monitoring.
Budgets have an important role to play in strong financial management as an organization or institution. Always ensure that your budgets are approved by the Board of Trustees, to check they reflect the planned strategic direction of the organization.
Project managers use a budget to guide their implementation and check on progress. Overhead costs that are shared (share cost) by many projects also need to be carefully controlled by whosoever that is assigned as a budget holder
Don’t forget codes used for your budget lines should correspond to the codes used in your accounting system. Otherwise it will be difficult to track actual spending against expected spending in your budget monitoring reports.
A cash flow forecast is as important as a budget. It constantly looks 3-6 months into the future, starting with the actual cash available now. It helps you to prioritize the timing and scale of planned activities and to spot cash flow problems in good time. Small or growing NGOs should use indirect and direct costs in their activities or projects in a strategic and systematic manner to ensure effective resource allocation, financial sustainability, and mission achievement, this gives donor or funder the confidence of the safety of the grant giving
UNDERSTANDING DIRECT AND INDEIRCT COST IN BUDGETING
Direct Costs are expenses that can be specifically attributed to a particular project, program, or activity. These costs are directly related to the implementation of the organization’s mission and objectives. Here are some examples:
Salaries and Wages: The salaries of staff directly involved in implementing a project or program, such as project managers, field workers, and program coordinators.
Consultant Fees: Payments made to consultants hired to provide specific expertise or services directly related to a project or program.
Materials and Supplies: Costs associated with purchasing materials, equipment, or supplies necessary for project implementation, such as construction materials, educational materials, or medical supplies.
Travel Expenses: Costs related to travel specifically for project-related activities, including airfare, lodging, meals, and transportation.
Equipment Costs: Expenses for purchasing or renting equipment directly used in project implementation, such as computers, vehicles, or specialized machinery.
Training Expenses: Costs incurred for training sessions, workshops, or capacity-building activities directly related to project objectives and staff development.
Indirect Costs:
Indirect costs, also known as overhead or administrative costs, are expenses that cannot be directly attributed to a specific project but are necessary for the overall functioning of the organization. These costs support the infrastructure and operations of the NGO as a whole. Here are some examples:
Utilities: Expenses related to the use of utilities such as electricity, water, gas, and internet services for the organization’s office space or facilities.
Rent and Facility Costs: Costs associated with renting or maintaining office space, including lease payments, property taxes, insurance, and maintenance expenses.
Administrative Staff Salaries: Salaries of administrative staff members who support the organization’s overall operations, including finance personnel, human resources staff, and administrative assistants.
Accounting and Legal Fees: Expenses for accounting services, auditing, legal fees, and compliance-related costs necessary for the organization’s financial management and regulatory compliance.
General Supplies: Costs for office supplies, printing, postage, and other general expenses used by various departments within the organization.