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This Fact Sheet is designed in response to questions from groups that have
set up their first budget and want to know what to do next. The sort of
questions we are often asked include:

¾Our Management Committee approved each project budget when it

approved individual projects. Why do we need to combine them into
an annual budget for the whole organisation?

¾How often do we need to review our budget?

¾The progress of one of our projects has been slower than originally
planned. What effect does this have on our budget?

¾What sort of reports should our Management Committee get? And

how often should they get them?

¾We drew up a budget for this year and got it approved. Do we need to
go through the same process in order to set a budget for next year?

¾In drawing up our budget for next year, we have found that our
expenditure needs are greater than the funds we have available?
What can we do about this?

¾One of our projects is funded for three years but it started half way
through the year. How do we incorporate its budget into the overall
annual budget?

¾If we set a budget annually, when should our Management Committee

approve it?

We will look at each of these issues in turn.

Our Management Committee approved each project budget when it

approved individual projects. Why do we need to combine them into an
annual budget for the whole organisation?

Your Management Committee is required to oversee the organisation as a

whole, not just individual projects. If you don’t combine all your individual
project budgets, you won’t have an overall picture of what your organisation
expects to receive or to spend. The Management Committee would not, then,
be able to discharge its responsibilities properly.
The absence of an overall picture can have damaging consequences.
Individually, it may look as though projects can be well controlled, as they
pose no problems of size. Put them together and the organisation may have
outgrown its ability to manage itself. It may be necessary to recruit an overall
manager to co-ordinate efforts between the projects or to recruit additional
members of the Management Committee with specialist skills. Without an
overall picture, you would not be able to plan for these eventualities or to
apply for funds to finance the consequences of expansion.

Also, statutory financial reporting and audit requirements are also based on
overall size. You could find you have crossed a threshold where additional
requirements apply (for example the need for a full audit, not just an
independent examination). Again, without the big picture you will not be able
to plan as to how you will meet and fund any additional audit requirements.

How often do we need to review our budget?

Once you have set up your budget, it should be reviewed on a regular basis.
The exact process for the review will depend on your organisation’s structure.
For a group with a full-time director, the process might involve a monthly
review between the Director and Treasurer and a quarterly review by the
Management Committee. In bigger groups with more than one project, a
monthly review of each project budget might be held with each project
manager.

As the year progresses, it is useful not just to compare actual income and
expenditure with the budget but also to try to predict what will be received and
spent between the review point and the end of the year – a forecast of the
likely annual performance against budget. It is a good idea to do this at least
on a quarterly basis. The point of preparing such a forecast is to get warning
of any potential problems in sufficient time to do something about them.

Like a budget, a forecast is a prediction and only as good as the information

and assumptions on which it is based. Because of this, it is an exercise that
should be treated seriously. Interpreting the forecast is also a balancing act.
The earlier in the year you prepare your first forecast, the more warning you
get of potential problems. However, forecasts prepared later in the year are
likely to be more reliable. As a larger part of income and expenditure will be
known, it will be easier to predict what the future holds.

The progress of one of our projects has been slower than originally
planned. What effect does this have on our budget?

It will not affect your budget as set. However, when you forecast the position
at the year end you will be predicting that you will underspend your budget.
From the point of view of control, you will have a better picture by comparing
your actual spending with the forecast rather than with the original budget.
For subsequent years you may be able to extend the life of the project.
Whether you can do this or not will depend on the terms of your funding and it
is advisable to check with your funders before making any assumptions.

What sort of reports should our Management Committee get? And how
often should they get them?

Firstly, it is vital that the Management Committee do receive financial reports.

It should not be assumed that the Treasurer will look after all aspects of
budgetary control. The members of the Management Committee as a whole
are responsible for the effective running of the organisation and control of
progress against budget is a key element of this.

A financial report should ideally form part of every meeting of the

Management Committee. Quarterly reports are the minimum acceptable.
This will enable the Management Committee to keep on top of progress
against budget and initiate any action that is necessary to keep on track.

The report should show the budgeted income and expenditure to date; the
actual income and expenditure to date; any differences between the two; and
an explanation of these differences. An example of the sort of report that
might be produced is shown in Appendix A.

We drew up a budget for this year and got it approved. Do we need to

go through the same process in order to set a budget for next year?

Yes and no. The aim is the same – a projection of your total income and
expenditure for the coming year – but as you will have more information to
work from, the process should be simpler.

When setting up a budget for the first time, you will be starting out with a blank
piece of paper and have to identify and justify each item of income and
expenditure.

For subsequent years you can use the last year’s budget as a staring point
and only build in such changes as you anticipate. For example, you may
need to increase expenditure to take into account inflation, pay increases,
new items of expenditure, etc. If you have applied for a grant for more than
one year, you should be able to transfer the budget included in the funding
application directly into your annual budget.

It can also be a good idea to circulate those responsible for generating

income and making expenditure asking for their estimates. This information
can be used to review whether your budget is realistic.
In drawing up our budget for next year, we have found that our
expenditure needs are greater than the funds we have available? What
can we do about this?

There are two basic options – apply for extra funding or cut your expenditure
to the levels anticipated in the original budget.

The first option will be appropriate if you are proposing to do things in the next
year that you weren’t in the current year. You should have planned for this
and already be applying for funds. If you haven’t, you should start doing so.
But, remember, until someone has committed to giving you funds, you do not
have the money to spend. At least in the short term you may have to cut back
on some expenditure.

If you have merely been careless with spending, you may well have to adopt
the second option to bring matters under control. Remember that it is highly
unlikely that you will find anyone to fund costs resulting from bad
management.

One of our projects is funded for three years but it started half way
through the year. How do we incorporate its budget into the overall
annual budget?

You will need to take a proportion (in this case half) from the budgets of the
two project years that fall into your financial year. It is probably easier to
illustrate this with some figures, and this we do in Appendix B.

If we set a budget annually, when should our Management Committee

approve it?

It is good practice for the budget to be approved at the last Management

Committee meeting of the financial year, so that there is a plan in place before
any spending happens. By this stage the likely funding should be known with
a fair degree of certainty and therefore for the committee to have a clear idea
of what money is available to spend. This is basic good management.

The implication of this is that the process needs to begin in enough time to be
ready for the Management Committee. In the case of a group whose financial
year begins on 1 April, you probably need to start the ball rolling in January.

If you are uncertain if funding will be received because, for example, you are
still awaiting a decision from a trust, leave it out. You can then revise the
budget later in the year if you get a positive response. The basic rule to follow
is if in doubt assume the worst.

Copyright: We are happy for voluntary organisations to reproduce any of

the contents of this Fact Sheet, provided the relevant source is
acknowledged.
 APPENDIX A

Budgetary Reporting & Control

Financial Report for The Period: 1 April to 30 June 2000

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INCOME

Lottery Grant 12,000 3,000 6,000 3,000 Grant for 6 months received in
advance. 12,000

TOTAL INCOME 12,000 3,000 6,000 3,000 12,000

EXPENDITURE

Office Rent 3,600 900 900 NIL 3,600

Stationery & Post 800 200 300 (100) Letterhead paper printed to 800
give stock for whole year.

Event Costs 5,800 1,450 900 550 Events programme started late. 5,250

Volunteers’ 1,200 300 500 (200) Larger number of volunteers 1,900

Expenses than anticipated was required
to set up and run events
programme.

AGM 120 30 NIL 30 AGM scheduled for December. 120

Accounts 480 120 120 NIL 480

TOTAL
EXPENDITURE 12,000 3,000 2,720 280 12,150

SURPLUS/
DEFICIT NIL NIL 3,280 3,280 (150)

Notes:

1. A budget for the period to 30 June has been calculated by dividing

the annual budget into 12 and multiplying by 3. This enables a fair
comparison with the actual expenditure to be made. Note,
however, that this is a fairly crude way of dividing up the budget, as
some expenditure such as the AGM is not spread equally
throughout the year.

2. The overspend on stationery would not cause concern at this stage

as the forecast is that the group will stay within budget for the year
as a whole.
3. As the group’s events programme started late, one would expect
that the associated costs would be lower than the original budget.
The £550 saving has been built into a forecast for the year. The
committee should be concerned if this lower figure is exceeded.

4. The volunteers’ expenses figure should give rise to concern. It is

clear either that the budget has been underestimated or that there
has been a lack of control over what has been spent. The
committee would need to get a full explanation of what has
happened and institute some action to rectify the situation. Note
that the forecast shows that this item will take the whole budget into
deficit.
 APPENDIX B

Project Budgets

A group has received three years’ Lottery funding for a project that started on
1 August 1999. In preparing the group’s overall budget for 2000/2001, the
Treasurer has had to incorporate this project’s budget but the group’s financial
year runs from 1 April to 31 March.

Project Budget for Year ending 31 July

  

… … …

Lottery Grant 27,000 24,000 18,000

Total Expenditure 27,000 24,000 18,000

(This would normally be split into a
number of items.)
(Year 1) (Year 2) (Year 3)

Four months of Year 1 (1 April to 31 July) and eight months of Year 2 (1

August to 31 March) fall into the 2000/2001 financial year. The Treasurer will
need to take this proportion of the project budgets from the two years.

The budget for 2000/2001 for both income and expenditure as calculated by
the Treasurer will therefore be:

27,000 X 4 = 9,000
12

24,000 X 8 = 16,000
12
______

25,000

For 2001/2002 the total budget will be £20,000 – but check out why!