Budgeting

This brief is one in a series of tips for civil society organizations written from a funders perspective.
It is intended to stimulate inquiry, rather than to provide rigid instructions.
T i p s f o r S t r e n g t h e n i n g O r g a n i z a t i o n a l C a p a c i t y
Budgeting
Tips for preparing a budget
with an emphasis on:
purpose of a budget,
preparing your budget,
budget components, and
creating a budget.
Project Development
Tips for developing and
implementing a project and key
questions to ask in the process.
Financial Systems
Tips for establishing an
accountable and transparent
nancial system to build
nancial sustainability.
Monitoring & Evaluation
Ti ps f or revi ewi ng and
assessing progress towards
objectives, identifying problems
and strategies, and making
adjustments to plans.
Resource Mobilization
Tips for mobilizing resources
closer to home to strengthen
organizational capacity and
del i ver benet s t o t he
community.
Grant Proposal Writing
Tips for developing and writing
a proposal, including critical
elements to facilitate project
success.
Reporting to Funders
Tips for maintaining and
strengthening your relationship
with funders following a grant
award.
PURPOSE OF A BUDGET
A budget is a key management tool for planning,
monitoring, and controlling the nances of a project or
organization. It estimates the income and expenditures for a
set period of time for your project or organization.
Your budget can serve a number of important purposes,
including:
Monitoring the income and expenditures over the
course of a year (or a specic project time frame)
Helping to determine if adjustments need to be made
in programs and goals
Forecasting income and expenses for projects,
including the timing and the availability of income
(such as additional grant funds)
Providing a basis for accountability and transparency.
For funders, a budget is also an essential tool and provides
an understanding of your work. Funders view budgets to
consider the following:
How are you planning to use the grant funds?
What are the other sources of funds for the work?
Does the budget reect local costs?
Do the expenditures correspond to the activities?
Does the budget fall within the guidelines of what the
funder can support?
What percentage of overhead expenses (such as
salaries, rent, utilities) is included in the budget?
PREPARING YOUR BUDGET
Who should be involved in the process of preparing a
budget?
Program and nancial staff should work together to
formulate a budget since budgets are based on objectives,
action plans, and resources. Once a draft is in place, seeking
input from your governing body (such as the board of
directors or general assembly) is important. This input gives
you an opportunity to develop a clear rationale for your
budget, helps you identify if any budget items or expenses
have been omitted, and draws on the boards expertise. By
collaborating with nancial staff, program staff, and your
board, you can develop a budget that reects priorities for
the entire organization, helping to build unity in your sense
of purpose.
What key questions need to be addressed?
Building on your planning process, you need to consider the
following questions in preparation of creating your budget:
What resources will be required to achieve your
planned goals?
Where will the funds come from?
How will you raise the funds?
How can your organization make use of in-kind or
donated services?
What external factors need to be considered?
External inuences that are not in your control may have an
impact on the success of your efforts. Having alternate plans
or rethinking your strategies should be a part of your
planning. Some external inuences that can affect your
nancial planning include (examples in parenthesis):
WORLD BANK SMALL GRANTS PROGRAM 1
Government or national policies and legislations (the
Poverty Reduction Strategy that may affect the way
governments address poverty)
Natural disasters or epidemics (drought that affects
the people you are working with)
Political conditions (elections that may disrupt daily
life or cause instability)
Global economic forces (changes in global market
prices for the commodity that farmers are producing)
Local socio-economic factors (increase in price of fuel
affecting your mobility)
Availability of donor funds and resources (changes in
funding priorities of funders)
When should you create your budget?
Begin convening nancial and program staff several months
before the start of your nancial (scal) year. This should
allow enough time for your group to address the questions
above and draft a budget that can be reviewed by your
governing board. For a budget that involves a new initiative,
additional planning time may be required to develop your
action plan and to determine if adequate resources can be
raised to implement the project.
BUDGET COMPONENTS
Below are areas to consider when preparing your budget:
Income: Funders like to see a diverse source of revenue
which shows that sustainability does not rely on one sole
source of funding. The income could include product sales,
government contracts, foundation grants, and individual
contributions. In some cases, organizations may not have an
income to report.
Expenses: Expenses should be itemized and include unit
costs, for example, daily fees or travel for number of
participants.
Budget Headings: Make sure that the same budget headings
or categories are consistent throughout the organization, for
both income and expense items. This will simplify your
bookkeeping and help with reporting and nancial reviews.
Headings may include: staff salaries, rent, utilities,
telephones, equipment, insurance, fuel, travel, fees for expert
consultants, etc.
Currency: Be sure to note what currency and exchange rate
you are using when presenting your budget to a funder.
Some may require you to convert your currency in to the US
dollars or other currency.
Notes: Keep notes to record the budgeting process. Notes
explain how and why budget calculations are made.
Combined with the budget, notes can serve as a clear guide
for your organizations spending and decision-making.
Budget clarity and notes also mean that as circumstances
change, revisions to a budget can easily be made to reect
changing realities. It also helps in case the activity is
audited.
Contingency funds: Include a line item that will
incorporate uctuation of costs or unexpected expenses.
In-kind (non-monetary) contribution: It is helpful to show
the costs or services contributed by your organization (such
as salary for the program manager, or labor to construct a
facility). Funders see in-kind contributions as evidence of
the organization and communitys commitment to the that
could lead to sustainability.
STEP-BY-STEP: Creating a Budget
These are some of the key steps to implement when
preparing and monitoring your budget:
1. Identify and plan your activities for the period in
question with your staff.
2. Determine what each of your expenses will be, by
category. Use previous budgets or invoices as a guide.
Assume an increase for cost of living, if comparing
expenses from previous year.
3. Estimate what your sources of income will be,
including earned income from sales or services, local
funds, international funders and governments. Also
consider in-kind services or donations, such as supplies
or volunteer time.
4. Analyze the difference between your income and
expenses. Make adjustments to balance your budget.
Determine what expenses need to be reduced and how
your may need to consider a different level of service.
5. Develop a plan for the unexpected, such as if funds do
not arrive at the anticipated time, if there is a crisis, or if
there are price uctuations.
6. Present your draft budget and cash ow statement to
staff, your governing board, or other key groups within
your organization for inputs and endorsement. Being
transparent about your budget with the key
stakeholders helps to legitimize your organization.
7. Make any changes and nalize your income and
expenses budgets, as well as the timing of your
expenditures and income.
8. Monitor the budget as your project progresses.
Budget i ng
WORLD BANK SMALL GRANTS PROGRAM 2
ADDITIONAL TIPS
Present as accurate a budget as you can.
Purposefully underestimating your expenses because
you think it will give you a better chance at receiving
a grant can hurt your organization. This is especially
true if you are unable to complete the activities due to
lack of funds. Community members could become
frustrated and lose faith in your organizations ability
to deliver. Funders see this as a reection of poor
planning and budgeting skills.
Cost estimates should be reasonable and accurate.
Inating (or overestimating) your budget can also
create a sense of mistrust with the funder and
beneciaries.
Ensure that the budget corresponds with the
objectives of the project.
When reporting back on your expenses to funders,
report on any differences with the proposed budget
and the actual expenses. Make sure that what you
spend is reasonable and is directly related to the
original objectives of the proposal. For example,
funders may question why you have spent funds on
mobile phones or rent when the activity was to
conduct a workshop. This expense may be legitimate,
but have documentation and justication ready in
case questions are asked. At the end of the grant
period, funders may compare your budget to the
actual nancial statement to ensure nancial
compliance.
FOR MORE INFORMATION
For information on strengthening nancial management
systems of NGOs, see the website for Mango, Management
Accounting for Non Governmental Organizations or
www.mango.org.uk.

The World Bank Small Grants Program is one of the
few global programs of the World Bank that provides direct
grants to civil society organizations through the World Bank!s
Country Ofces. The Small Grants Program seeds and supports
activities related to civic engagement that empower and enable
citizens to take initiatives to inuence development outcomes.
www.worldbank.org/smallgrantsprogram
Social Development Department - The World Bank
Tips by Yumi Sera and Susan Beaudry, 2007
Budget i ng
WORLD BANK SMALL GRANTS PROGRAM 3