Budgeting and forecasting are essential elements of financial management for clubs. They are what drives the success of your development plans providing vital financial information to support the day-to-day operations of the club.
Where the bookkeeping and accounting process considers expenditure that has already occurred, the budget process is forward facing. It predicts the expenses you expect to incur and the income you hope to bring in. It is intended to minimise the risk of being faced with nasty surprises.
In short, budgeting is the process of planning the finances over the budget period, typically a financial year. Budgeting can also provide an opportunity to plan ahead for several years in an effort to identify changing conditions that may impact on the organisation’s operations and cause financial difficulty. Forecasting then reviews actual outcomes against budgeted activities, identifying changes in anticipated events. Forecasting provides the financial information that shows if plans need to be amended and enables the organisation to be proactive in achieving its goals.
Good budgeting and forecasting requires:
- preparation against strategic goals set and approved by the management committee
- budgeted timelines aligned to the preparation of financial statements
- regular comparison of budgets against actual financial results as disclosed in the financial statements
- scope for amending activities and targets where actual results indicate that budgeted outcomes will not be met
Preparing a budget
As budget years are generally aligned with a clubs financial year, the work of drawing up a budget must begin well in advance. Count back from the end of your financial year and consider:
- how long it will take to collect the necessary information about planned programs, staffing changes, new equipment needed, grant applications approved, and anything else to be documented on the spreadsheet?
- how long will it take to have the Management Committee sign off on the budget document?
Begin by reviewing your previous year’s budget. What can you learn from how your estimates for last year’s operations went? Did your expenses go up? Did your anticipated income go down? Then consider what events may have occurred to impact these things: new tax laws, rising prices, changes in membership or management.
Check your business plan against the reality of your accounts. Did the budget allow you to achieve your objectives comfortably? Was there scope for savings? Are there any changes that could have reduced costs?
Now look at this year’s plans. Do they include any new activities that you expect will result in increased costs?
Laying out the budget
In designing your budget framework you need to ask:
What are the things you spend your money on? (Expenditure)
The standard major expenditure items are:
- Advertising / Promotion
- Sundries (anything that doesn’t fit under the other headings)
How do you bring money into the club? (Income)
The standard major income items are:
- Net Bar Sales
Now you have to estimate what the figures will be in each category. Remember, you’re not costing what you did last year, or even what you’re doing now; you want to know what it will cost to deliver the objectives set out in your strategic plan.
In making this estimate you can draw on all the available information – what the figures were like last year, what grant applications you have in at the moment and what your income is presently like – but at some point you will always have to make the best guess possible.
You can’t know whether this year for the first time in living memory it will rain on the day of your major bowls carnival – but you can’t wait till the day to find out, either. A sound rule is to be conservative about estimating income and expansive about estimating expenditure. If you’re genuinely unable to come to a conclusion, draw up two budgets, one optimistic and one less so, so that you’re prepared when you eventually find out.
Staff costs (if applicable) will probably be the most important component of the operating budget. Work these out on a separate spreadsheet. Include salary, including tax, and on-costs – holiday loadings, payroll tax (if any), and superannuation.
Small clubs with simple management structures can have one budget for the whole club, with headings like the ones given above. Larger clubs with more complex managment structures, may need separate budgets for different areas of operation (Greens, Bowls, Bar etc..) and a combined budget to sum them up. Combined budgets are simpler to run, but you can overlook trouble developing in a particular area if the outcomes are spread across multiple areas of operation.
You can then move to stage 3, which is to subtract expenditure from income to determine whether you’re going to be ahead or behind. This gives you a preliminary summary.
You can decide to run a deficit, or a surplus, if you want, as long as you have a long-term plan in place – there’s nothing that says you have to balance the accounts every year, particularly if you have special programs or if you ran a surplus last year.
If you come out ahead, go back and check your mathematics. Then check your assumptions.
If you’re still ahead, you have some room to take a proposal to the Management Committee for expanded services, programs or expenditure. If you think things are going to get harder next year you can put some money aside.
If you come out behind, check everything again. Is there any scope for increased income? Do not just say, “We’ll try harder”. Do not just go back to the “Donations” entry and raise it till the problem goes away. This is a very short-term solution indeed. Do you have any money in your accounts to cover it? Is there any scope for cutting costs while still achieving the objectives? If so, what (or who) are you going to drop? If you cut programs, how much will this reduce costs? If any positions are involved, discuss it with the people. If you can’t achieve your goals on that money, which of your goals are you going to compromise? Again, you’ll have to take it to the Management Committee.
In your accounting framework include a month-by-month comparison with the budget. This is only an indication, as month-to-month variation can be just random fluctuation. In particular, look at the pattern of income and expenditure in previous years. Don’t necessarily just divide the year’s budget into twelve equal parts. Does money go in or out at any particular times every year? For example, do membership fees come especially at the beginning of the year (most likely). Is all your sponsorship income received at the same time? Are there any big expenses at certain times of the year such as Bowls Affiliation fees?
This can throw off your calculations, and could at worst catch you up in cash flow problems. Information from budget monitoring must be made available to the Management Committee.
Do not get complacent just because your budget seems to be working out. Even a good budget does not answer all your financial questions or cover you against all hazards.
Remember that a budget only records money changing hands. Your budget can be encouragingly in surplus even when you are in big trouble. If, for example, you have contracted to deliver services over two years, received all the money in the first year, and spent most of it. You then enter the second year with a small surplus and no extra expenditure – but in fact all your staff may be committed to undertake work for which you will earn no extra income.