How to Prepare Budgets for Charities: A Comprehensive Guide

How to Prepare Budgets for Charities: A Comprehensive Guide

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Budgeting is a crucial aspect of managing a charity. It ensures that resources are allocated efficiently and helps in achieving the organisation's mission. In this guide, we'll walk you through the steps to create an effective budget for your charity.

We recommend that you firstly download the budget template from your organisations Xero. This provides you with a starting template to ensure that the budget can be simply imported back into Xero for easy tracking.

1. Understand and document your Financial Goals

Before you start budgeting, it's essential to understand your charity's financial goals. These goals should align with your mission and strategic plan. Ask yourself:

• What are the key objectives for the upcoming year?
• How much funding is required to achieve these objectives?
• What are the potential sources of income?

Add a separate sheet to the excel Xero Budget template and call it Financial Goals. Document the goals and plans in this sheet so that the Board can review.

2. Identify and document Income Sources

Charities typically have multiple income sources, including donations, grants, fundraising events, and government funding.

In a separate sheet in the excel template, list all potential income sources and estimate the amount you expect to receive from each. Be realistic and conservative in your estimates to avoid overestimating your income.

Name this sheet Income Sources. Note any assumptions on the income sources here too.

3. Categorize Expenses

Divide your expenses into categories such as:

• Program/ Department Expenses: Costs directly related to your charitable activities.
• Administrative Expenses: Costs related to the overall management of the charity.

You can add supplementary sheets for the different programs, this helps with fundraising for each separate program / department too and assists the team running the program / department with controlling and managing the costs.

Ideally the administration expenses can be apportioned to the different programmes / departments, as they cannot operate without the administrative functions. It is important to include the programs share of the administrative costs in their budget especially when the budget is used to obtain funding.

List all expected expenses. Be as detailed as possible. For example, under program expenses, you might include costs for materials, staff salaries, and transportation. Under administrative expenses, consider rent, utilities, and office supplies. Make notes alongside noting how you have arrived at these numbers.

We also advise an employee sheet – this sheet should list all the employees by name, and document which department, program they operate under, their annual salary, or alternatively their hours and hourly rates, their KiwiSaver % and any other allowances, to arrive at a gross annual total for each person. From there you can create a column or two extras to see the impact of salary % increases.

4. Create a Summary Budget

This is made using the budget template that you downloaded from Xero. The purpose of this sheet is to combine all the separate department / program sheets, income sheet and administrative sheet into a total overall budget. We would recommend using a formula that links to the other tabs, rather than hardcoding in the numbers, so if changes are made on individual tabs, they are also changed in the summary tab too.

Self-check to ensure that you have not missed line items from the individual sheets but do not change the template otherwise you cannot import back into Xero.

5. Monitor Cash Flow

Cash flow management is vital for charities and requires a budget as a starting point. Ensure you have a clear understanding of when income will be received and when expenses will be incurred. This helps in maintaining healthy cash flow and avoiding any financial shortfalls.

Ensure that you are managing cash flow, in conjunction with your income in advance.

6. Review and Adjust Regularly

A budget is not a static document. Regularly review your budget against actual income and expenses. Adjust your budget as needed to reflect any changes in your financial situation or goals.

Creating a budget for your charity might seem daunting, but with careful planning and regular review, it can become a manageable and even empowering process. A well-prepared budget not only helps in achieving your financial goals but also ensures trasparency and accountability to your donors and stakeholders.

We have found that it increases the charities' ability to negotiate and obtain higher amounts of funding if it is clear, concise and well documented and managed.

Reach out today for help completing your charities budget and cashflow forecast.

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If you would like help, please contact us

Phone: 09 869 2200

Email: carolb@tael.co.nz

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