financial planning
This section contains information on financial plans.
financial planning
financial plan
A financial plan shows what your total expenditure is likely to be and when money will be required. A financial plan may include a:
- budget – forecasting income and expenditure for the next 12+ months
- cash flow forecast – a monthly break down of the receipts and payments, including the opening and closing bank account balances.
Budget
The treasurer usually has the key role in preparing the budget but he or she will need to work closely with the other members of the organisation. A budget can be prepared in a spreadsheet. Once the budget has been approved it is added into your accounting system to ensure the organisation can use it to compare to actual income and expenses. If you use a cash book accounting system (either computer spreadsheet or manual cash book), it is still important to compare the actual financial performance with the budget – refer to the 'Monthly reporting' section.
To prepare a budget:
- start with your actual income and expenditure from last year (or two if this is available) – new groups will have to start with their best guess of what to expect
- add what you know about the coming year
- adjust and modify until you have a realistic and reasonable budget
- get the budget approved by your management committee or governing body.
Tip
You may want to start with your planned expenses to calculate the total cost then you can focus on what income and funding is required to cover that total cost.
Cash flow forecast
It is important to do some cash flow forecasting throughout the year to ensure that you know when there may be highs and lows in your income so that you can plan your activities around these. This will help to avoid the situation of the bank bouncing your cheques.
A cash flow forecast helps ensure that you can meet monthly fixed costs (e.g. wages) when your income is not coming in regularly. By cash flow forecasting, you can also maximise interest earnings from investments by investing your money until it is required to pay for something.
To prepare a cash flow forecast:
- use the budget (prepared above) and break it down by month
- add in opening bank balance and calculate closing balance.
Tip
Information on preparing a cash flow budget is available electronically from Inland Revenue’s website (www.ird.govt.nz) along with other useful information.
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