Budgeting and forecasting are essential elements of financial management for clubs. They are the tools that develop the business plans of the organisation into a financial statement. The financial statement enables boards and management committees to evaluate and monitor the plans. Most clubs operate without large reserves to draw on. Therefore budgeting and forecasting will provide the financial information to enable management to decide if the business plans will support the ongoing operations. In short, budgeting is the process of planning the finances over the budget period. 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 require the following:
• 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
In short, for Clubs, budgets and forecasts provide information on the future of the organisation and if planned and managed well, they will be the central financial statements that allow the board and management to monitor the financial impact of the organisation’s business plans.
Preparing a Budget
A budget is a way of thinking ahead financially. Accounting looks backward, at what income you have received and the amount you have actually spent. Budgeting looks forward. 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.
The Budget Calendar
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; how long will it take to collect the necessary information about planned programs, staffing changes, new equipment needed to be purchased, 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?
It’s important that the process of preparing the organisation’s budget involves everybody who’s going to be affected by it.
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?
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?
Go over each item. What was it last year? Have there been any external changes that would alter this – new tax laws, rising prices, changed practices?
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:Salaries
Advertising / Promotion
Sundries (anything that doesn’t fit under the other headings)
- How do you bring money into the organisation? (Income)
The standard major income items are:Grants
Net Bar Sales
Add your own special categories to these. Put in subheadings where they represent significant sums (and check your formulas to make sure you’re not double counting them).
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 Business 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.
|Expenditure||Last year||This year||Next year(Budget)|
|Net Bar Sales|
|Special fund-raising events|
You can have one budget for the whole organisation, with headings like the ones given above, or for bigger clubs you can have 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 the whole organisation.
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.