Financial sustainability for local NGOs

What does financial sustainability mean?

Financial sustainability does not mean having no donors. It means your organisation can continue its mission when one funding stream ends or changes. The CIVICUS toolkit on financing strategies says a financially sustainable organisation must have more than one source of income, more than one way of generating income, regular strategic, action and financial planning, adequate financial systems, a good public image, clear values, and financial autonomy.

Most civil society organisations depend on donors to some extent. The question is how much, and how well you prepare. Pressure on funding makes this a daily issue for many Myanmar organisations. Read what to do when a major donor cuts funding for the immediate steps. This article is about building the base for the long term.

How do you check where you stand?

CIVICUS suggests indicators to measure your current position:

Add two simple numbers from your own accounts: the share of income from your largest donor, and the number of months you could run with no new income. These show your risk clearly.

How do you diversify income?

CIVICUS advises diversifying the donor base, particularly away from over-reliance on foreign donors, and looking for local donors in grant-making and corporate sectors. A study of NGOs by the Palladium Group's NPI-Expand programme, based on interviews in several countries, found that most respondents had diversified their revenue and saw it as necessary because relying on one source is a risk in times of uncertainty or conflict. Their sources included foundations, embassies, local philanthropy, private sector partners and local government.

Options to consider:

1. More institutional donors, so no single grant dominates. See how small NGOs can diversify their funding.
2. Local and individual giving, including diaspora supporters.
3. Fees for services, such as training, research or consultancy, where this fits your mission and legal form. See earned income and social enterprise.
4. Using spare resources, such as renting out meeting space or vehicles, if rules allow.
5. Membership contributions, for membership-based groups.

Ask what each source costs in time. A small grant with heavy reporting may cost more than it brings.

How do you build reserves?

Reserves are money you can use freely, for example to bridge a gap between grants. Bond's study of 28 organisations makes these recommendations:

• Have a reserves policy that the board and leaders understand and follow.
• Review it regularly against risks and the changing environment.
• Think long term: reserves take time to build, so plan early for the loss of a major grant.
• Build reserves by running a consistent unrestricted surplus until you reach the target. Two main sources are unrestricted donations and good cost recovery.
• Use a layered approach: consider each major income or expense risk. Bond notes some organisations aim for three to six months of running costs for each area of work they regard as long-term critical.
• Balance the level. Too little worries donors, and a very high level may suggest you are not spending enough on your purpose.

The Mango guide to developing a financing strategy expresses reserves as the number of days you could continue without external funding. A target stated in months or days is easy for a board to track.

How do you cover core costs?

Rent, salaries for finance and management, audit and systems are costs of running the organisation. If every budget leaves them out, you will slowly use up your own resources. Include a fair share of core costs in every proposal, using a method you can explain, and follow donor rules on indirect costs. See why core costs matter and cost allocation across several grants. Over time, aim to raise some unrestricted income. See building unrestricted funding over time.

How do you write a simple financing strategy?

CIVICUS describes a financing strategy as a document linked to your organisational strategy. Keep yours to two or three pages:

1. Where we are. Income by source, donor share, months of reserves, main risks.
2. Targets for three years. Your desired funding mix, the share of income you are willing to take from any one donor, and your reserves target.
3. Actions each year. New donors to approach, services to develop, a plan for building reserves, who is responsible.
4. Review. Your board reviews progress at least twice a year.

You need your strategy first. CIVICUS says you must know what you plan to do and what resources it needs, before you work out how much money you need and how to raise it. See also how to write a strategic plan.

What mistakes should you avoid?

• Waiting until a grant is nearly finished before looking for the next one.
• Taking any funding even if it does not fit your mission.
• Counting on one loyal donor, which CIVICUS calls both great and dangerous.
• Spending every unrestricted kyat, so you never build a buffer.
• Leaving finance to one person, without board oversight.

Rules on income, reserves and reporting differ by country and legal form. Check your registration and donor agreements, and use a qualified accountant for specific decisions.

How EMPO can help

EMPO is a reliable, Yangon-based training and consultancy provider and one of Myanmar's leading names in practical NGO training, with 1,200+ people trained and 15 partner organisations. We support local organisations with organisational development, proposal writing and budget management training, in English and Burmese, online or in person across Myanmar. See our services or contact us.

Sources

• Developing a Financing Strategy — CIVICUS
• Building financial reserves for resilient organisations — Bond, 2021
• Resource Mobilization research paper — Palladium Group, NPI-Expand, 2024
• Free Mango Guide: Developing a Financing Strategy — Mango, via fundsforNGOs