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Budgeting

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Your budget needs to be a translation of your plan into financial terms – you should not be able to write one without the other. 

You want the thought process in your organisation to look something like this:

1. What are we planning to do? 2. What resources do we need to do it? 3. How much will they cost? 4. Where will the money come from? 5. Can we afford to deliver that plan?

It’s an open loop because you may have to go round it a few times before the answer to the final question is 'yes' and you can go ahead. 

Setting aside the widespread dislike of numbers, one of the things that seems to put people off budgets is the fear that they will 'get it wrong' – don’t worry about that, you will – no one can predict the future. 

What you need to do is make an intelligent estimate of the things that are predictable, with assumptions based on:

  • evidence where that’s possible (this year’s rent has been £x, we are not expecting to move and the landlord has indicated there will not be price increase, budget for rent is £x)
  • intelligence gathering (based on average turnover of staff, we are likely to have to recruit 1 person this year – recruitment costs budget £y)
  • best guess (we haven’t held an event like this before, if 10% of the families in the village came, that would be Z0 families at £10 per family – budget income £Z00) – which then gives you something to measure against

Then as you go through the year, and your spend is up or down against budget you can reflect on your assumptions and see what needs to change in your financial forecast.

There will always be some things that are unpredictable – and that is where your risk assessments come in.

Who should be involved?

You always need to involve the people who actually do the work in creating the budgets for it.

That might sound obvious, but it has been known for finance staff to write budgets. But as they don’t do the work they write something based on what happened last year (and the money they have been told is coming in). Then everyone is surprised that the budget doesn’t seem to relate to what people need – operational staff resent being held accountable for a budget they didn’t write, and finance staff are frustrated that people can’t do as they are told.

More help with the detail

Cash flow forecast

A cash flow forecast predicts how much money you will have in the bank at any point over the coming months, showing the impact of timing of your receipts and payments on your bank balance.  Like any other financial information, it is there to help you make decisions.

It Is the same as in your own life – it’s particularly relevant if:

  • your income or expenditure isn’t regular but comes in peaks and troughs (perhaps you are reliant on one major event, or your members all renew at the same time of year).
  • you are short of money
  • you have a surplus you might be able to invest for a period of time

Your budget predicts whether there will be enough income overall in the period to cover costs, but cash flow tells you when you can pay your bills. 

The process is straightforward – what you are likely to find difficult is committing to saying when money will arrive (or be spent) because you often just won’t know.  In that situation:

  • make some assumptions (probably best err on the side of caution)
  • test them out with colleagues or someone who will listen
  • if they still seem sensible, note them down with your cash flow
  • monitor & update your cashflow regularly

When you have produced a cashflow – use it.  Look at the bottom line – showing the balance on your bank account:

  • are you happy with the balances at the end of each month or are some too low for comfort? 
  • does it look as though you will have a surplus you could invest?
  • before you do anything - check your assumptions again to see if anything has changed which would make the cash balance vulnerable

Cashflow process

1. Work out the income and expenditure month by month, when you think money will actually come and gop from the bank account. 2. Add up the total income for each month. 3. Add up the total expenditure for each month. 4. Calculate 'net money in or out for the month' = total income minus total expenditure. 5. Starting at month 1, work through all months. 6. Calculate balance at end of month' = balance at beginning of month + net money in (or minus net money out). 7. Balance at end of one month = balance at start of next month.

There are plenty of free templates to download that do the calculations for you. CAPlus Community Accounting have a demo as well (in Toolkits) which makes the process clear. 

 

Page last edited Jul 19, 2018

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