It’s budget season and whilst hated by many it is an essential function that should be performed in order to demonstrate good stewardship to trustees and supporters alike as a budget gives a clear picture of our ongoing performance against your goals.
Below I consider some of the key elements that will help you prepare your budget(s).
Useful information when preparing a budget?
One of the most important elements will be your own knowledge of your organisation – you know, perhaps based on certain events, when income is likely to be received and expenditure incurred. A useful indicator however is what has happened in the past i.e. your historic data.
Do you need to budget for individual accounts?
Not necessarily but it may be useful. For example, you could budget for income as a whole or break that down between donation, legacies, cash collection, and any other income sources. Budgeting for individual accounts makes it easier for you to identify areas of strength or weakness.
What historic data is useful?
Typically, your historic data provides a good indication of what you might expect in the future and you may choose to use historic actual data and apply a growth e.g. same as last year but growing by 5%. However, for organisations that are growing (or contracting) rapidly you might want to use the data from the last month as your starting point and apply changes from there e.g. we had 3 employees at the start of last year but 5 at the end and we’re growing further.
Should you consider seasonality?
The classic example of seasonality is the ice-cream salesperson who sells more in summer months than any other time of the year. A similar situation may happen in your organisation and should therefore be considered. Where you’re using historic data that seasonality is already likely to be built-in but you may want to apply it to other budget accounts.
What else should you consider?
Many organisations will have several funds and on some, if not all, it may be appropriate to budget against those funds e.g. a restricted fund where the donor wants to see that you are performing against any agreed objectives. You may also have another analysis level that you budget against e.g. for a department or cost centre.
What tool should I use for budgeting?
Many will use a spreadsheet but these are prone to error with incorrect or missing formula or, more commonly, accidental deletions of formula. A better option is to use your financial software if it provides a budgeting function. Liberty Accounts, a specialist charity ‘cloud’ financial solution provider, has considered all of your possible budgeting requirements and makes the preparation of a budget a very straightforward exercise.