March 20, 2018

Five tips to manage your finances better

Nonprofits can make significant savings in time and effort when they streamline their finances and create a culture of accountability within their various teams.

5 min read

Managing funds well is a crucial aspect of any organisation’s success. But it is also a complex aspect, partly because those in charge of building the budget are often different from those who spend the money and maintain records of expenses.

For instance, the head of a nonprofit—often the founder or CEO—handles the fundraising and puts a budget together. Programme and support staff across levels of the organisation then spend the money while the finance team manages the accounting of expenses. [quote]Educating all parties regarding donor-specific requirements for allocation is complicated.[/quote]Educating all parties regarding budget heads and donor-specific requirements for allocation of funds is complicated; there is added complexity when teams are spread across geographies and you are working with several donors, each having their own reporting norms.

We are all familiar with the tussle between the field team and the accountant or between the head of the organisation and the finance team at the time of expense reporting. And of course, the numerous emails between the funder and the nonprofit clarifying the expense reports.

At Buzz India, the organisation I run, we have made a concerted effort to streamline how we allocate and spend our funds to be able to spend donor money more effectively. We are still learning as we go, but there are steps we have taken that have helped us progress.

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Hold department heads accountable

It’s natural to pay attention to what one is held accountable for. For instance, programme teams look at inputs, outputs and outcomes, and focus on monitoring whether their programme is achieving what it set out to do. Similarly, HR focuses on talent recruitment, development and retention goals.

Approvals for spends, in many cases, fall under the purview of a few senior management staff who often have limited visibility of individual team budgets and spending requirements. However, if teams could decide where to spend and were held accountable for their decisions, we would see greater focus across the organisation on budgets and funding.

Last year, we experimented with splitting up our organisation’s budget, giving each team responsibility over its own spending. Each department head would now need to pay attention to both operational and financial aspects of their work. Although I have to often remind our department heads about their individual budgets, there is definitely a conscious effort on their part to make the new model work.

Deliberate on budget heads with your team

Discuss the various budget heads extensively with key team members before sending a proposal. This is important because we tend to focus on the implementation costs while creating a proposal and forget expenses related to the head office for that particular programme. [quote]We tend to focus on the implementation costs while creating a proposal and forget expenses related to the head office for that particular programme.[/quote] For instance, if there are communication materials for your programme that need to be printed from the head office, they should be factored into your programme cost. Not including the communications team in budgeting could result in missing this expense.

Such omissions across different teams inevitably add up. Though some donors might ask questions about, for instance, communications costs in a programme budget, in our experience we have seen that there is never an issue if the overall allocation is relatively small, say, 1-2 percent of the budget.

Doing this exercise also gives the team a feeling of being involved from the beginning of the programme and not being asked to follow instructions top-down.

Managing funds well is a crucial aspect of any organisation’s success

Train your team

While most organisations have a manual on allowable expenses and formats, it is wholly inadequate. Often sent as part of an employee’s induction package,the manual is forgotten soon after.

Employees need to understand basics such as maintaining bills, allowed and disallowed expenses, maintaining accounts, budget heads under the project, the finance team’s role in programme implementation, and so on.

All of us facilitate trainings for our teams on programme implementation, technical skills, productivity, communication, etc. Adding a training on finance will be very useful. This training should have the same level of rigor that you would apply to any of the other training: it should be in person and at regular intervals (at least twice a year). Supplementary coaching must also be given to team members who might be relatively inexperienced in this sector. [quote]A great deal of confusion at the time of reporting expenses is because of the lack of clarity… about how certain expenses are to be recorded.[/quote]The training must be conducted by your finance and HR team rather than being outsourced to an external consultant because every organisation has a unique budget and expense reporting protocol depending on the project, cause or donor.

A great deal of confusion at the time of reporting expenses is because of the lack of clarity among different people and teams about how certain expenses are to be viewed and recorded.

Recording expenses is seen as one of the most basic tasks that every employee can do if they are given standard templates; the reality, however, is vastly different with serious implications for the programme and the organisation. That’s why it is important to invest time and resources in a good training programme.

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Institutionalize field visits for your finance team

If your expense sheet should reflect the cause you are working for, the person who maintains it must keenly understand the cause. Wrong booking of expenses often happens because the finance team is looking at a figure on a sheet of paper without having a deeper understanding of what that expense was towards.

To use the printing example mentioned earlier, if the training kit for the programme were printed at the head office, the finance team might book the cost as an administrative expense rather than a programme expense.

This confusion is best avoided if the finance team spends at least one day in a quarter visiting the implementation spaces to truly understand the programme.

Be open with your funder

This is one of the most important things for any nonprofit to do. Talk to your funder about where the money is being spent. Consider adding in a variance and comment section in your donor report. Every funder wants to know the reasons for variance anyway, so why not include them upfront?

When Buzz wanted to expand its operations into urban areas, we applied the same strategy that had worked in our rural operations: partnering with local nonprofits and micro-finance institutions to mobilize women from the community. Despite spending six months trying to broker partnerships with several organisations, we had no luck. [quote]Making a few incremental changes to internal processes can result in big savings in terms of the time and effort spent on expense sheets and reporting.[/quote] As a result, we were unable to spend the money we had raised from a donor. Going back to our funder and sharing our challenges turned out to be extremely beneficial, because our donor brainstormed ideas, which we then successfully implemented. Although we missed our targets that year, we were able to achieve twice our target the following year.

Making a few incremental changes to internal processes can result in big savings in terms of the time and effort spent on expense sheets and reporting. Most importantly, it helps us spend our limited funds more efficiently and effectively.

All the above steps are still work in progress for Buzz India, but we are making progress in shifting our teams’ mindsets to look at finance differently. The biggest tangible result from this would be more ownership from everybody and a feeling of being more involved in how money is spent.

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Uthara Narayanan-Image
Uthara Narayanan

Uthara Narayanan is co-founder and managing trustee at Buzz India. She has been a development sector professional since 2009, with specialisation in grassroots community engagement, government policy review, policy deployment assessment, gap analysis, process improvements, and advocacy. A cost and management accountant, Uthara holds a bachelor’s degree in commerce and a diploma in youth in development.