Annual Budgeting

Introducción

Annual budgeting refers to the different activities in order to prepare a budget for the coming year, which forecasts future incomes and expenditures. This will help you determine in advance whether you will have enough money to do the things you would like to do and how much additional funds you needs to raise.

Por qué

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This toolkit is useful when your organisation:

• needs to know how much money it will require in order to do what it has planned.
• needs to plan, develop and use budgets effectively.
• needs to increase capacity to manage finances effectively.

Qué puede esperarse

In eight steps this toolkit will help you in including the necessary stakeholders, using the correct formats, and creating a high quality final product. Here you’ll find a step-by-step guide, tools, examples and other resources for creating an annual budget.

Paso 1: Defining Scope

• Discuss and understand the scope of the budget with the management: whether it is an operations budget, a program budget or a three to five year projection. The scope of the project should be based on the organisation’s life stage and take into account the resources available.
• This video helps you to break down the annual budgeting process in digestible steps:

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Paso 2: Identifying Owner

• Nominate a staff member as owner of the budget. That person will know all details and be able to answer questions from other colleagues.
• Assemble a small team of advisors/consultants who are competent in accounts and finance and will support the owner in his/her function.

Paso 3: Referring to Operations Plan

• Define the annual goals of the organisation, before you create a budget for the coming year.
• Discuss the strategies and how you will reach those goals.
• Create a detailed annual implementation plan, consider all resources required and calculate their costs. Have a look at the toolkit Annual Implementation Plan if you need further help.

Paso 4: Estimate Cost Categories

• Take enough time, when calculating the cost of a resource, to do research and inform yourself about market rates etc. The costs fall usually in the following categories:
  • program costs
  • administration costs
  • staffing costs
  • capital costs

Paso 5: Drafting Budget

• Develop a budget format in an excel spreadsheet. You can use the tool Management report cashbook template.
• Include both incomes and expenditures in your budget format.
• Fill in the amounts you have estimated for each line item in the budget.
• Keep the budget detailed but simple; an outsider should be able to understand your budget.

Paso 6: Finalising Budget

• Get feedback from the leader(s) and the board, once the first draft is created.
• Get their feedback and make changes if required.
• Have the budget double checked by someone else, internal or external, to be sure that there no mistakes in numbers or formulas.
• Keep one master copy of your budget “frozen” or read- only so that no one can accidentally change formulas, etc.

Paso 7: Monthly Monitoring

• Invest enough time to carefully check your spending against your budget each month.
• Analyse projected income and expenditure and identify shortfalls immediately to make plans to raise the deficit.
• Check the amount spent each month against the amount allowable in each month.

Paso 8: Monitoring

• Analyse your budget against your actuals, towards the end of year.
• Analyse where you have over- or underestimated costs and why. These learnings will help you for the planning for next year’s budget.

Key To Success

• The first time it is just about listing out the approximate costs, people and other resources. Be aware that it will be based on assumptions, the next year your numbers will be more reliable and be based on the experiences from the previous year.
• Estimates are informed guesses, not just guesses. Do your homework, get quotes, phone around to arrive a likely cost.
• Get feedback on your budget - has everything that is required been included?

Desafíos

• Organisation may have limited experience with budgeting and is not quite sure where to start and which framework to use.