Chapter 17

Budgets

WHAT IS A BUDGET?

Income is the money an organisation receives. Expenses are the amounts of money an organisation pays out.

A budget sets out the amounts the organisation expects its income and expenses to be for a fixed period of time, such as a year. In other words, the budget tells you how much money the organisation thinks it will need to do its work in the next one to three years; where it hopes some of the money will come from, and how much money it still needs to find.

The Management Committee must decide what should be included in the budget. Someone – usually the treasurer – must be given the job of drawing the draft budget up. The Management Committee – or the highest decision-making body- then has to approve this.

Once the budget has been prepared, it needs to be checked and discussed by other members of the executive. Then it must be approved by the trustees, management committee or whoever has authority in the organisation.

  • The budget should be presented to the membership, either at the Annual General Meeting or in the Annual Report, and it should be used regularly as a way of monitoring the spending of the organisation.
  • Budgets are also an important part of trying to raise money from funders. You cannot fool funders with made-up amounts. Amounts must be properly motivated, either in the funding proposal or in a note with the budget. An example of such a note is ‘A motor vehicle is essential for the field employee because the settlements are, on average, 150 kilometres apart, and there is no public transport.’

WHAT PERIOD OF TIME SHOULD A BUDGET COVER?

There is no fixed rule about this. A budget can cover any time from months to years. With an overall budget for an organisation, you need to budget for at least three years. This shows a sense of commitment and continuity.

If you are preparing a budget for more than one year, you must remember to add on a percentage to cover the cost of living increase for each year. This is called ‘inflation’. So, if salaries cost R60 000 in 2024, they should cost R66 000 in 2025 if the cost of living goes up by 10%. Find out what the cost of living is by reading the financial section of the newspapers or by talking to an accountant. When preparing a budget for more than a year, you need to remember that some projects could expand. The office may also set up new projects, bring out a new publication, and get new staff and new equipment.

HOW TO CALCULATE EXPECTED EXPENSES AND INCOME

Before you can work out what your organisation’s expenses will be, and how much money you will need, you must be clear about the organisation’s objectives, and how you plan to achieve them in the period for which you are preparing a budget.

ANALYSE WHAT THE ORGANISATION SPENDS MONEY ON

Once you are clear about what work the organisation will do for the time the budget covers, you must write down everything that costs the organisation money. Start off with a list of everything you can think of. Afterwards you can put the items into groups or categories. So your final list could look like this:

  • STAFF:
    • Salaries
    • Medical aid
    • Pension fund
    • Telephone
    • Internet service provider
    • UIF
  • ADMINISTRATION:
    • Stationery
    • Telephone, fax
    • Bank charges
  • EQUIPMENT
    • Rent/purchase
    • Repair and maintenance
    • Costs
  • ACCOMMODATION:
    • Rent
    • Electricity and water
    • Telephone and Internet service provider
  • TRAINING DEPARTMENT:
    • Transport
    • Food
    • Cost of venues
    • Accommodation for participants
    • Groceries
  • PUBLICATIONS:
    • Printing costs
    • Distribution costs

When you have worked out what you plan to spend money on, you can work out how much each item and each category costs. You can use your own records to work out the costs.

EXAMPLE

If stationery has cost your Advice Centre R500 per month in the past year in the Ezikweni Advice Centre and inflation is at 10%, what should you budget for in the following year?

  • R500 + 10% inflation = R550 per month
  • R550 x 12 months = R6 600 per annum

But the records show that the number of clients who came to the Advice centre over the past six months increased by 10% every month. This means there will be an increase in spending of approximately 10% on stationery.

The calculation will then look like this:

  • R500 + 10% inflation = R550 per month
  • R550 + 10% increase in spending due to increase in numbers of clients = R550 + R55 = R605 per month
  • R605 x 12 months = R7 260 per annum

DOING AN INITIAL BUDGET FOR AN ORGANISATION

If this is the first time that your organisation is preparing a budget, you should make a list of the items and categories you think you will need to spend money on.

Remember to include those items which you will need in the beginning, but that you will not have to buy again, such as desks, chairs, kettle, filing cabinets, rent deposit, telephone installation, advertising jobs, computer and printer. This is called capital outlay.

Running costs are those costs that you spend regularly to keep the organisation going.

It is important to include a section in your budget on expected income. This means the income that you expect to get from your own fundraising, or membership fees and so on.

You are then telling the funder what your needs are, and also how you expect to pay for these needs.

WRITING THE BUDGET

When you have calculated your expected expenses and income, the next step is to write your budget down in a way that is useful for the organisation and for funders.

For the organisation’s own use, it should be possible to understand, at any time, how amounts were decided upon and what they are.

Motivations for particular items in the budget do not have to be written into the budget, but they can be part of the written proposal, or they can be attached to the budget as notes.

Where you think that something in the budget may be unclear to the reader, it is worth including a note to explain it. For example, when in the first year of the budget you have a fairly small amount, but in the second year it is much bigger, you should have a note explaining the big increase.

WHAT SHOULD YOU SEND WITH YOUR BUDGET TO THE FUNDERS?

If you are preparing a budget to send to funders, you will have to send certain other documents with it. These could include:

  • Overall funding proposal
  • Project proposal
  • Annual report
  • Programme of action for the year to come
  • Audited statement
  • Copies of publications (if available)
  • Copies of newsletters (if available)
EXAMPLE OF BUDGET: A SIMPLE BUDGET FOR AN ADVICE CENTRE
EXPECTED EXPENDITURE (IN RANDS)PER MONTH2024/2025
Administration:Auditors2503 000
Bank charges1001 200
Travel (work-related)1 00012 000
Equipment and repairs5006 000
Rent1 20014 400
Stationary3003 600
Telephone and postage6007200
SUBTOTAL3 95047 400
Staff:Salaries (1 person)3 00036 000
Staff training5006 000
SUBTOTAL3 50042 000
Publications:Printing1 25015 000
SUBTOTAL1 25015 000
Training:Trainer’s fee6007 200
Travelling and sundries3003 600
SUBTOTAL90010 800
Overall expenditureTOTAL9 600115 200
EXPECTED INCOME ( IN RANDS)2024/2025
Income generated:Raffle3 500
Evening Function6 000
Donations:Membership fees20 000
OVERALL INCOMETOTAL29 500

MONITORING YOUR BUDGET EVERY MONTH

To calculate the amount that you can spend each month, you must divide your total annual budget by 12 months. So, for example, if your total expenditure budget is R115 200 per annum, then you should be spending about R9 600 per month.

AUDITED STATEMENTS

An audited statement is the complete record of all your expenditure and income for a year as shown by your bookkeeping system, and checked and approved by a qualified accountant. Organisations should have their bookkeeping audited (checked and approved by an accountant) at the end of each financial year. The financial year is different from the ordinary year. It does not go from January to December, but can be from 1st April of one year to 31st March of the next. This will differ between organisations.

The audited statement shows exactly how much money was spent in the year, what it was spent on, where the income came from and whether you spent more than you had or less. Donors also use the audited statement to check how good the financial management in your organisation is before they give you any more money.