Budgeting in unusual times
How would you complete these two sentences?
- Budgets are vital because…
- Budgets are a waste of time because…
To answer the question about how we should consider budgeting in unusual times, it is important to understand what a budget is. One formal definition is “an estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals”.
Unpacking that we see the following:
- “Estimate” / “reflecting a reading of future financial conditions’’: there will be some guesswork - who knows what tomorrow will bring? No doubt there will be some things that you do know, some things you can make an educated guess about and others where you have no idea.
- “Costs, revenues and resources”: not only income and expenditure, but also your resources, your reserves. Charities should also consider producing a budget for nonfinancial resources, for example how many volunteer hours are needed to deliver the plans you have? You can then compare actuals against budget to see how your volunteer recruitment is going.
- “Goals”: your budget should mirror your plans for activities and what you want to achieve from those activities.
You may have a slightly different definition of a budget, but here are a few for you to consider:
- “A device for stopping wayward people thinking they can spend money when they can’t”
- “A prompt to do the things you have decided need to be done”
These definitions, whilst slightly tongue in cheek, make important points:
- Budgets are there for a purpose, and while I would not say you should never spend money that was not in the original budget, the budget should have been seriously and collectively thought through and therefore any significant change to that warrants the same level of scrutiny about priorities within the organisation and not simply reacting to a windfall or the person who shouts the loudest.
- Whilst I would never advocate spending a budget just because it is there – if you have decided something needs doing, and it is in the budget – and still needs doing – do it!
Download issue three of our 'Revive, Refocus, Rebuild – The journey back to better' guide here to find out more…
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