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Introduction To Budget

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35 views3 pages

Introduction To Budget

Uploaded by

cadinhojr825
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is a Budget?

A budget is a financial plan that outlines expected revenues and expenditures over a specific
period, enabling organizations to allocate resources effectively. For NGOs, budgets are crucial as
they provide a framework for utilizing funds responsibly to achieve their objectives while ensuring
accountability to donors and stakeholders.

Why is Budget Important for NGOs?

1. Resource Allocation: Helps NGOs allocate limited resources to priority areas effectively.
2. Transparency and Accountability: Demonstrates to donors and stakeholders how funds are
being utilized.
3. Strategic Planning: Aligns financial resources with the organization's mission and strategic
goals.
4. Donor Compliance: Ensures that funds are used according to donor agreements and grant
conditions.
5. Monitoring and Evaluation: Tracks financial performance and helps identify areas where
adjustments are needed.
6. Risk Mitigation: Anticipates potential financial shortfalls or overspending, enabling pre-
emptive action.

Role of Budget in Financial Management

1. Planning: Acts as a roadmap for financial activities, ensuring alignment with


organizational objectives.
2. Control: Establishes financial limits for various activities to avoid overspending.
3. Decision-Making: Provides a basis for making informed decisions regarding
expenditures and program funding.
4. Forecasting: Helps project future financial needs based on current and historical data.

Role of Budget vs. Actual (BVA) in Financial Management

1. Performance Monitoring: Compares planned budgets to actual expenditures,


highlighting variances.
2. Accountability: Ensures spending aligns with the approved budget, maintaining
transparency for stakeholders.
3. Corrective Action: Identifies deviations from the budget early, allowing corrective
measures to be taken.
4. Donor Reporting: Demonstrates proper use of funds as per agreements, building
donor confidence.

How to Prepare a Budget (Step-by-Step)

Step 1: Define Goals and Objectives

 Identify the specific goals and objectives of the NGO for the budget period.
 Understand the scope of activities to be funded.
Step 2: Review Past Budgets and Performance

 Analyze historical data to understand previous spending patterns and revenue streams.
 Review past variances to avoid repeating mistakes.

Step 3: Identify Revenue Sources

 List all potential income sources, such as:


o Grants from donors
o Membership fees
o Fundraising events
o Government subsidies
o Service fees (if applicable)

Step 4: Categorize Expenses

 Separate costs into the following categories:


o Program Costs: Direct expenses related to program activities (e.g., training,
workshops, materials).
o Administrative Costs: Indirect costs such as office rent, utilities, and staff salaries.
o Fundraising Costs: Costs associated with fundraising campaigns.

Step 5: Estimate Costs

 Break down expenses into smaller components for accuracy

Step 6: Consider Inflation and Contingencies

 Add a contingency line (e.g., 5–10% of the total budget) to account for unforeseen costs.
 Account for inflation, particularly in volatile economic environments.

Step 7: Align Budget with Strategic Plan

 Ensure that each line item supports the organization’s strategic objectives.

Step 8: Prepare a Budget Template

 Create a detailed table with the following columns:


o Description of the item
o Quantity
o Unit cost
o Total cost
o Funding source (if applicable)

Step 9: Review and Approve

 Share the draft budget with relevant stakeholders for feedback.


 Present the budget to the Board of Directors or other governing bodies for approval.
Step 10: Monitor and Update Regularly

 Continuously track actual expenses against the budget and update it as needed.

Salary Costs

 Total Salary Costs: $28,800

 Principal: $300 × 12 = $3,600


 Head of Teachers: $250 × 12 = $3,000
 Teachers (4): $250 × 4 × 12 = $12,000
 Finance Manager: $250 × 12 = $3,000
 Watchmen (2): $150 × 2 × 12 = $3,600
 Cleaners (2): $150 × 2 × 12 = $3,600

One-Time Costs

Total One-Time Costs: $6,900

 School Innovation: $5,000


 Graduation Event Cost: $500
 Certificates for Students (700): $2 × 700 = $1,400

Maintenance & Running Costs

Total Maintenance & Running Costs: $14,299.96

 School Repairing: $208.33 × 12 = $2,499.96


 Electricity: $120 × 12 = $1,440
 Water: $50 × 12 = $600
 Internet: $120 × 12 = $1,440
 Stationery: $166.67 × 12 = $2,000.04
 School Rent: $520 × 12 = $6,240
 School Visibilities: $80.04

Grand Total

 Salary Costs: $28,800


 One-Time Costs: $6,900
 Maintenance & Running Costs: $14,299.96

Grand Total: $49,999.96

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