A budget is a plan expressed in money.  Your budget tells your future story in monetary terms. Budgeting is one of the most powerful business and management tools around. It plays a key part in planning, control, and decision-making.

In the beginning

Firstly, decide who is going to be involved in the budgeting process, include those who will deliver specific parts of the service.  Secondly, think about who will do what, by when and how.  All of this is to make sure all of it runs smoothly.

Put together a timetable for the whole process.  Make clear who does what, and by when. The timetable should allow for holidays and time for the budget to be distributed in time for the new financial year. Your budget should not be too slack nor too tight: Certainly, the co-coordinator has a responsibility is to see that deadlines are met and move people along.

Most importantly, budgets are based on assumptions.  For instance the level of regional arts funding, audience numbers, artists’ fees, inflation and price increases, staff levels and pay rises. Above all, agree the assumptions at the start of the process, inform all concerned, and keep a record of your assumptions .

A budget takes a view on the future, but it is not a prediction of what will happen with 100% certainty.  Moreover, your budgeting skills will improve over time.

Typical Budgetary Assumptions

  • Levels of core and project funding
  • Audience numbers
  • Marketing spend
  • Artists’ fees
  • Material costs
  • Inflation and price increases
  • Staff levels and pay rises
  • Changes in legal requirements
  • National insurance, tax and pensions

Budgets are based on a range of assumptions. These assumptions must be agreed in the beginning, communicated to all concerned and kept on file with all other budget documentation. Remember that budgets look to the future, do not expect 100% accuracy with the forecasts. Budgeting is as an evolving process, which can be reviewed, modified and improved.

What to budget for

Firstly, decide on the projects and activities you want to do.  Secondly, consider what the cost headings will be, but split between capital and revenue costs:

  • Capital costs includes items such as computers, printers, and furniture
  • Revenue costs are grouped under, say ‘artistic’ and ‘administrative’ costs

Artistic costs include artists’ fees, performance fees and touring costs; In addition, administrative costs include gross salaries, printing and stationery, depreciation, postage and phone contracts. Look at what you have spent so far.  After that, look at what you are planning to spend next year.  Consequently, all items of spending will be covered.

Forecast some numbers

Make a financial forecast figuring out what your financial position will be by the end of the current year, This is called a latest likely achievement LLA .  This projection guides next year’s figures.  Where you plan a new project or activity get quotes on what the likely costs will be.

Two possible ways to set a budget:

1, Look at last year’s figures, adjust for next year by inflation or a % increase.
2. Budget based on need.  Need reflects your artistic programme, and your organisational priorities

The first approach is straight forward, simple to use and popular. However, this approach has limitations.  Costs aren’t challenged and inefficiencies can be built in.

Some costs don’t change year on year, we will not have time to revisit each budget heading. We may not know the detail of our artistic programme; Funders may change priorities at short notice.

Making a budget based on need is an ideal situation.  This works well if you are in a small organisation, or project budgeting.

Typically, the overall budget will blend in both approaches.

The next stages

A budget starts as a draft, put together by one person or a small group.  This is presented to directors, or a management committee.  The budget is unlikely to be accepted first time round, it is normally passed back for revisions.  A budget will be eventually agreed, and then shared with those who need to implement it.

In our next article we will look at how to put the numbers together.

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