Developing a basic budget

Budgets are an essential part of good financial management and are used to estimate your income and expenses over a certain amount of time. Developing accurate budgets will help your organisation to provide better services, successfully apply for grants and meet your financial reporting obligations.

Most organisations develop a budget that covers all of their income and expenditure for the financial year. This budget will be based on your organisation’s planned activities for the year developed by the management committee and staff. The budget for the organisation will need to be approved by the management committee and should be developed by someone with a good understanding of book-keeping.

Although the budget for the organisation will include projects that you want to run, you might also need to develop a budget for each project. This will be essential if you are applying for funding but it is also useful if you want to compare the budget with the actual income and expenditure for the project. You may also decide to develop budgets for different parts of your organisation. If you have paid staff, they may develop these budgets before they are approved by the organisation.

Estimating income and expenditure

Whether you are developing a budget for your organisation or a project, you will need to identify the probable sources of your income, where your expenditure is most likely to occur and an estimate for each of these amounts. It is also a good idea to estimate when you will receive income and when you will have expenses to ensure that you will be able to make payments when they are needed.

For the organisation as a whole, income might include membership fees, payments for services, bank interest, grants, donations and other types of fundraising. For individual projects, you might be relying on one or more grants and/or sponsorship from other people or organisations.

One way of estimating your organisation’s income for next year is to look at what was received in the previous year and decide if this is likely to increase or decrease and by what amount.

You will also need to determine the areas where the organisation will have expenses. The larger items will usually include salaries and wages, rent, phone, electricity/gas, stationery, postage, insurance, photocopying and other expenses. Your organisation may also need to include amounts for items that might be needed, such as staff payments including long service leave.

There are particular rules about how organisations budget for more expensive items such as computers and if you are unsure about this, you should seek professional advice.

The amounts that were spent in the previous year can help you to determine your organisation’s budget expenditure for the next year. You will then need to decide if these amounts need to be adjusted for increases in costs or additional expenses. Wherever possible, you should also ask for one or more quotes for budget items.

Individual projects may have expenses across some or all of the same areas as your organisation. When you are developing a budget for a project, some of your costs will involve staff time and a proportion of the organisation’s costs such as electricity and rent. You will probably also have other costs such as paying other people to work on the project, catering, travel, venue or equipment hire and other items.

If you are applying for funding from a funding body, you may only able to include certain expenses, so you will need to check before completing your application.

Unless the budgeted income for your organisation and projects equals or is greater than your budgeted expenditure, you will have financial problems and should not approve the budget.

Monitoring the budget

After you have developed your budget and it has been approved, you will need to ensure that your income does not exceed your expenditure. Even if your budget was realistic, you might have unexpected costs or earn less income than planned. To avoid serious financial difficulties, it is important to monitor your budget regularly to make sure that it is still accurate.

The management committee is responsible for monitoring the organisation’s finances by checking the financial reports provided by the Treasurer. These reports should show the monthly income and expenditure as well as amounts for the year to date. You will also have responsibilities under the Associations Incorporation Act to provide certain financial information at the end of each financial year.

Project income and expenditure will be included as part of the organisation’s financial reports but will also need to be monitored separately. Financial reports for the project may be prepared by staff but will need to be checked by a manager or the management committee. If the project is being funded by another organisation, they will usually expect financial reports during or at the end of the project.

If there are differences between the organisation’s budget and actual amounts, you will need to understand the reason why this has occurred and look at ways to either cut down on your expenses or earn more income.  If there are changes to your project budget, you will probably be expected to let the funding body know as soon as possible and it might affect the conditions of your grant.

Developing realistic budgets can help your organisation to run effective short-term projects and continue to deliver services into the long-term future.

Further information:

Note: You can access the following Department of Communities information by registering at the Management Support Online website.

Last updated 2008-02-21