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Paralegal skills and establishing an Advice Centre

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 donors. You cannot fool donors 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 fieldworker 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 2011, they should cost R66 000 in 2012 if the cost of living goes up 10%. Find out what the cost of living is by reading the financial section of the newspapers or by talking to an accountant.

In 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, 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:

How much does each category cost?

When you have worked out what you 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.

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 have 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 on a regular basis 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 donor 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 donors.

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 donors?

If you are preparing a budget to send to donors, 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 a simple budget for an advice centre

Monitoring your budget monthly

In order 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.