Budgets, Flow Forecasting and Management Accounts

Andrew O’Brien What does Finance do?

SUPPORTING DECISIONS

CONTROL

ANALYSIS AND REPORTING

PROCESSING TRANSACTIONS What is a ?

Translation of your Plan into monetary terms:

What resources What are we How much will do we need to planning to do? they cost? do it?

Can we afford to Where will the deliver that money come plan? from Why would you do a budget?

• Organisations need a clear plan – doing a proper budget makes you check if you can afford to deliver it • Helps to allocate resources to organisation’s priorities • Tool for tracking performance • Requirement for funders When to do your budget

• Takes longer than you think • Consultation • Drafting • Negotiation (& redrafting) • Approval • Good Practice • Organisational budget approved 3 months before start of year – allow 4 wks to prepare • Project budget – allow 2 wks+ to prepare Who should do the budget?

• People responsible for doing the work • Get people involved • What is Finance’s role? • Manage the process • Technical resource • Check and balance How do you start to write a budget?

Start with the plan – what is the organisation going to do?

Identify who is responsible for the different areas

Help managers to work out what resources they will need for each team/project and what that will cost

Ask them to identify where the money is going to come from! How do you predict income?

• Similar process • Critical assessment of current experience • For new income – research the market/similar projects • Always tricky to know how to include income that is not approved/is uncertain • Be cautious - if you include it explain clearly and offer contingency plan Translate that into a budget…

• Break costs down into manageable units • Make use of templates/checklists • Line by line quantify each item making copious notes: • What assumptions you’ve made • What you’ve included and how it’s calculated • What you are uncertain about • NB Apply effort proportionate to size of item • Applies for income and expenditure How to present the Budget

• Headlines • Graphics • No surprises! • Ask for what you want (advice, approval, decisions) Presentation ideas for numbers

Headline figures: Bar charts with breakdown Bar charts with breakdown Words

• Key features - expenditure: • Brand refresh planned for Oct - £10k spend • Staff team unchanged – reflecting steady progress

• Risks • Membership drive • Events always uncertain! Allocation of Support Costs

• Number of ways to divide costs between projects – need to choose one that is logical & clear (& allowed by funder) • Headcount • Time spent by admin staff • Floor space • Expenditure What are Management Accounts?

• Information about an organisation’s finances produced to help the managers & Trustees: • Monitor progress & performance • Make effective decisions • Make plans Who uses management accounts?

Finance Team

• Detailed picture of the state of organisation’s finances • Highlight areas for decisions/action

Management Team

• Understanding of overall finances • Capacity to control areas of influence • Information to support decision making

Trustees

• Understanding of overall finances • Information to support decision making What should you prepare?

• Think about your own KPIs • Comparison of actual income and expenditure against budget • Forecast income and expenditure to year end compared with budget • Investigate significant differences • Consider if any action needs to be taken • Updated cashflow forecast • Big funds balance needing investing? • Predicted problems needing decisions? What should you prepare? ctd

Additional info: • List of significant amounts owed by and owed to the organisation • Detailed information on restricted Funds What makes good management accounts?

Accurate & up to date • Trade off – quality of report, time taken to deliver Focus on relevant information • Find out what people want to know Clear presentation • Less is more – put the detail in the appendices What should you present?

Pick out key features

Explain significance - What? So What? Now What?

Narrative – at least as important as numbers!

Experiment with graphics

Ask for what you want - Decisions, Advice , Approval Final Thoughts:

The purpose of working on your budget & management accounts is to help you make better decisions – the narrative is at least as important as the numbers. What? So what? Now what?

Always root your budget in your plans and be realistic – it’s better to know about your challenges in advance

Be clear about the full costs to your organisation of any project – even if you can’t charge it all to a funder

Keep an eye on your (now that you know how easy it is)