Inyathelo's "Get Resourceful" session on Financial Management! featured a live Q&A session via Twitter (#GetResourceful) to make our experts available to people who were not able to attend the session.
Q: How does budgeting for sustainability relate to Inyathelo’s definition of Advancement?
A: Advancement is only possible when an organisation knows what it financially needs to run (core costs) and programmes both now and in the long term and has a plan in place for attracting these resources.
Q: What approach to financial management should a non-profit organisation have?
A: An organisation must ensure senior management undertake work plans every year based on sufficient funds, and that the donor base is sufficiently diverse.
Q: So what should happen in a financial management planning process?
A: During annual planning, leadership and staff decide what an organisation wants to or needs to achieve in the coming year. This is costed and a budget is then drawn up by the financial manager, Executive Director and other senior management. The Board signs this off.
Q: How many budgets should a non-profit organisation have?
A: Any organisation has two budget areas or two types of budgeting focus: core costs relating to the running of the organisation, and the programme or project costs.
Q: How can we ensure that an organisation’s core costs are covered?
A: Every programme must ‘pay its way’ in an organisation – reflected in the budgets set out in donor proposals. Programme costs must include organisational running (core) costs.
Q: How does an organisation budget for these additional costs over and above direct programme or project expenses?
A: Every project budget has to include “indirect costs” which are the proportion of project costs that include the running of the organisation, organisation staff for the project, etc.
Q: What do donors want to see in proposal budgets?
A: Line items like ‘Personnel costs, travel costs, indirect project costs’ are useful. Vague references to ‘sundries, other, etc’ are not a good idea.
Q: What if donors will not fund core costs?
A: Many donors remain unwilling, but this is shifting. Keep discussing the ‘big picture link’ between organisations and the running of programmes with donors, and be clear about what the actual running costs of programmes are.
Q: Should an organisation have more than one donor?
A: Yes - organisations should have a range of donors from various sectors, including individuals, local private foundations, the corporate sector, and international foundations and agencies but be mindful of the obligations of serving multiple donors.
Q: How should funds from multiple donors be managed?
A: It is vital systems are put in place so that donor-specific expenditure and financial reporting can be tracked and drawn up internally.
Q: Is it a good idea to become a social enterprise or start a for-profit business to generate income for a non-profit organisation?
A: It is crucial to properly understand what both entail. The best route is to generate income by developing services or products from the core work of your organisation, without switching your operating model.
Q: What is a reserve?
The reserve is the term used for the balance of unspent funds, or the financial surplus, that can be invested or used by the organisation to fund its future expenditure.
Q: Should organisations have a reserve fund?
Yes – this is essentially a fund to support an organisation in difficult times. Most organisations should be looking to have cash in reserve, to a minimum amount of 25% of annual operating costs – or 3 months of an annual budget.
Q: How do we build up a reserve?
A: The most reliable way to build reserves is by operating at a modest surplus (bringing in more money than you spend) consistently over time and saving/investing this surplus.
Q: What is an endowment?
A: An endowment is an established fund of cash, securities, or other assets to provide income for the maintenance of a non-profit organisation. Endowments are built to generate income to cover an organisation’s core costs. To build an endowment from reserves takes a great deal of discipline and financial planning
Q: How does an organisation build an endowment?
Donors can be used to fund an endowment or leave a legacy donation. However, it is more feasible to build an endowment created from reserves.