It’s that time of year again when so many of us are starting to think about what we need to include in next year’s organisational budget.
We asked our resident Financial Manager for tips about what you need to consider when preparing your next budget.
Start with your organisation’s strategic goals
Budgeting is so much more than numbers. It’s about looking ahead, thinking about your future goals and plans. This will help you predict what your expenses and income might be. So, before you even open an excel spreadsheet you need to work out what you want to achieve over the next 12 months and how you will get there.
Ask yourself these questions
Start by asking yourself these questions which will help you to clarify what you need to include in your budget:
- What are the key three to five things you want to achieve over the next 12 months?
- Are these goals realistic? There is no point planning to double your revenue if you have no realistic way to achieve this or the economy is just not in the right place because of other factors you can’t control, such as a natural disaster or global pandemic.
- Do your goals and associated activities help you achieve your long-term vision?
- What do you need to achieve these goals? For example, if you want to increase your membership subscriptions, do you have a plan for how you will do this? Do you have the people and resources to achieve this? Do you need to hire more staff, buy equipment or upgrade your subscription software? How will you promote your subscriber drive? Do you need marketing or advertising support? What will this cost?
- If you don’t achieve your goals, what impact will it have on your organisation? Do you have a back-up plan?
- Are there any upcoming changes that could affect your budget? For example, price increases from suppliers.
Once you’ve worked out what you want to achieve and how, you can start looking at what it will cost. It’s only then that you can really start building your budget.
Be clear about your Board’s expectations for the next year
Before you start the process of preparing your budget, make sure you have a clear understanding of your Board’s expectations for the next 12 months’ activities. There’s no point developing a detailed budget if it doesn’t align with the Board’s strategic vision.
Talk to your team about what they need
Never do your budget in isolation. Get the broader team involved. Ask them what they need to be able to achieve the organisation’s goals over the next year and what it will cost.
Look at your cash flow
This is particularly important if money is tight. A budget is not just about the income you generate or what you are planning to spend. You also need to think about your cash flow during the year and anticipate if there are times when it could be a problem. It’s a good idea to have at least three to six months of expenses covered with cash in the bank. This should ensure you can cover any unexpected events.
Don’t just do a budget and forget about it
Throughout the year look at your actual expenses and how they differed from the budget. This will help you to understand what worked well in the process, if there were any issues and how they might be avoided in the future.
Budgeting is not an exact science. After all, you don’t have a crystal ball to tell you what will happen in the future. It’s both your target and a guide to help you manage expenses and meet the strategic objectives of the organisation.
Useful resources
There are lots of resources online that can help you prepare your budget. Here’s a few:
- Business Victoria – How to create a budget
Outlines the steps you need to take to create and use a budget. - Business Victoria – Preparing a profit and loss budget
Plain English explanations and templates. - Institute of Community Directors Australia – Preparing a budget
Overview of how to prepare your budget including a list standard expenditure and income items. - Institute of Community Directors Australia – Financial Management and your group
High-level information about managing your finances and developing your budget. - Institute of Community Directors Australia – Budgeting for treasurers
Lists the steps an organisation can take in developing a budget with practical examples. - Community Broadcasting Association Australia – Cash reserves: financial stability and sustainability
Webinar and fact sheet covering why it is important to have cash reserves.
The Community Media Training Organisation runs a range of courses for the sector during the year, including Financial Management Made Easy. To find out when they are running the next course, sign up to their newsletter.