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What are some common budgeting challenges and pitfalls for nonprofits and NGOs and how to avoid them?

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Nonprofits and NGOs often have to deal with complex and dynamic budgeting scenarios, such as fluctuating funding sources, multiple programs and projects, and diverse stakeholders. How can they plan and allocate their resources effectively and efficiently, while avoiding some common budgeting challenges and pitfalls? Here are some tips and best practices to help you manage your nonprofit or NGO budget.

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1 Understand your funding landscape

One of the first steps in budgeting for nonprofits and NGOs is to understand your funding landscape. Who are your funders, what are their requirements and expectations, and how reliable and flexible are they? Different types of funders, such as donors, grants, contracts, or earned income, may have different reporting and compliance standards, as well as different timelines and cycles. You need to map out your funding sources, their terms and conditions, and their risks and opportunities, and align them with your strategic goals and priorities.

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Daniel Weaver, CPA

I help nonprofits use financial management to increase their impact.
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Often the simplest way to start is to look at your results last year. Then adjust for known changes, such as subtracting one time bequests received that you will not be getting again. Add in any grants or funds you have been notified you have been awarded that will not be received until the period in the budget. Historical results don't predict the future but they can at least give you a starting point for your budget.

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Hanan Hasbullah

Senior Accountant @ Coreo Real Estate | Head of Finance
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Understanding our funding landscape is like reading the map of financial opportunities. It involves knowing where our organization can secure resources, be it through grants, donations, or other sources. This knowledge is essential for strategic financial planning and sustainability.

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2 Develop realistic and accurate budgets

Another key step in budgeting for nonprofits and NGOs is to develop realistic and accurate budgets that reflect your mission, vision, and values. Your budgets should be based on reliable data and assumptions, as well as clear and measurable objectives and indicators. You should also consider the costs and benefits of different activities and programs, and allocate your resources accordingly. Your budgets should be transparent and accountable, and communicate your financial needs and impact to your funders, staff, board, and beneficiaries.

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Hanan Hasbullah

Senior Accountant @ Coreo Real Estate | Head of Finance
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Developing realistic and accurate budgets is akin to crafting a finely-tuned instrument for our financial symphony. Just as a composer meticulously orchestrates each note, we meticulously assemble financial data. It's about creating a harmonious balance between income and expenses, ensuring that every financial element plays its part precisely, to hit the right financial notes and achieve our organization's financial masterpiece.

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3 Monitor and review your budgets regularly

Budgeting is not a one-time exercise, but a continuous process that requires regular monitoring and review. You should track your income and expenses, compare them with your budgeted amounts, and identify any variances and reasons for them. You should also evaluate your performance and outcomes, and assess whether you are achieving your intended results and delivering value to your stakeholders. You should report your financial status and progress to your funders, board, and staff, and solicit their feedback and input. You should also update and revise your budgets as needed, to reflect any changes in your internal or external environment.

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4 Anticipate and prepare for uncertainties and contingencies

Budgeting for nonprofits and NGOs can be challenging, especially in uncertain and volatile times. You may face unexpected events or emergencies, such as natural disasters, political unrest, or pandemics, that affect your operations, funding, or beneficiaries. You may also encounter unforeseen costs or opportunities, such as currency fluctuations, inflation, or new partnerships. You need to anticipate and prepare for these uncertainties and contingencies, by creating scenarios, building reserves, diversifying your income streams, and maintaining flexibility and adaptability.

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Scott Wells

AgXplore International
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Don't get caught up in the non in non profit. It is ok not to spend every penny on programs that you take in and it is ok, infact smart, to build some savings for lean times.

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Hanan Hasbullah

Senior Accountant @ Coreo Real Estate | Head of Finance
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Anticipating and preparing for uncertainties and contingencies is like having a financial safety net. It means being ready for unexpected challenges, whether it's economic downturns, sudden expenses, or other surprises. It's a crucial aspect of financial resilience and adaptability in any profession.

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5 Seek professional advice and support

Budgeting for nonprofits and NGOs can be complex and demanding, and you may not have all the skills and expertise to handle it on your own. You may benefit from seeking professional advice and support from experts, such as accountants, auditors, consultants, or mentors, who can help you with various aspects of budgeting, such as financial planning, analysis, reporting, or compliance. You may also learn from other nonprofits and NGOs, who may have similar experiences or challenges, and share best practices, tools, or resources. You should also invest in building your own capacity and skills in budgeting, by providing training, coaching, or mentoring to your staff, board, or volunteers.

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Amy Y.

Founder/CEO of C Three Business Consultants. A business and technology solutions provider. Author, Servant Leader, Business Consultant, Technology Consultant, Top 100 People to Know in St. Louis, Connector, and Networker
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It is very important to bring in outside professionals to assist with analyzing the organization. There may be things that the outside resource can identify that the board, employees, or volunteers fail to see.

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What are some common budgeting challenges and pitfalls for nonprofits and NGOs and how to avoid them?

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1 Understand your funding landscape

2 Develop realistic and accurate budgets

3 Monitor and review your budgets regularly

4 Anticipate and prepare for uncertainties and contingencies

5 Seek professional advice and support

Budgeting

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