The Challenges facing the Non-Profit Sector in 2009
The challenges facing commerce and industry this year will be reflected in the amount of funding made available to the Non-Profit Sector (NPO). Because private sector funding of programmes is often a ‘grudge’ type of expenditure made to fulfill corporate social investment expenditure requirements, the business outlook for 2009 will provide the private sector with an excuse to reduce or curtail such expenditure.
The NPO sector will need to meet this challenge by careful planning and control of their operations. At the heart of the best way of doing this is the NPO’s budget particularly because it also plays such an important role as a control instrument. Unfortunately the budget is viewed, along with its preparation, as a financial management responsibility but this is not the case. The budget itself is merely the financial representation of the operating plans of the NPO. The accountants should be in a supporting role. The operating plans should be drawn up by the leadership – both senior and at operating level. The accountants should not be driving the budgeting process. They should merely be translating the NPO’s plans into the financial formats that budgets take. But, equally important are the narratives that explain how the numbers are arrived at. Understanding these is part of the role of the non-financial management and staff.
At the heart of any NPO’s operations are the programmes and projects that it runs. Each of these requires its own operating budget. These budgets must be integrated into the NPO’s master budget. Programme and project budgets form the core of funding proposals for both new and ongoing funding. One problem facing NPOs is that Funders/Donors want to fund specific activities and not the ‘overhead’ cost of the NPO. Funders want to be able to identify their funding with specific activities for which they can claim the credit. Of course the reluctance to fund NPO overheads is nonsense – no programme could be run nor project carried out without the overarching infrastructure (i.e. management, accounting, HR, rent, telephones etc.) that is classed as overhead. What is needed is a clear understanding of the principles of cost allocation so that the so-called overhead cost can be allocated to programmes and projects in a manner that is defensible and understood by funders.
The other very important function of budgets, once prepared, is control. The budget, when combined with regular financial reporting, can provide an early warning of when operational plans are not on track. In this regard it is important to note that in NPO areas of operation many results can be expressed in financial terms. This needs to be considered when NPOs are preparing budget formats and subsequent management reports. Financial control issues also need to be addressed.
The solution to the problems outlined above is to ensure that NPO management and operational staff are properly prepared to play the role required of them in the budgeting process. The Budgeting for NPOs Workshop that I offer can play an important role in preparing NPOs for the budgeting process. The workshop is not a theoretical lecture, although budgeting principles are covered. It is, rather, a process during which participants are actually taken through the important initial steps of preparing a budget in their own organization. Participants work in small groups and take away with them the tools they need to carry on the process that has been introduced to them.
I have facilitated this workshop for a broad range of NPOs ranging from the African National Congress to the South African Medical Association, and other NPOs operating in the health development sector.
These one-day workshops are usually run from 09.00 to 16.30 (weekends included) for groups of 8 to 15 participants.
If I can assist your staff by improving their budgeting skills please email me at email@example.com or call me on (083) 377-1858.