A financial plan shows what your total expenditure is likely to be and when money will be needed. A financial plan may include a:
- budget forecasting income and expenditure for the next 12 or more months
- cash flow forecast a monthly breakdown of money coming in and going out (receipts and payments), including the opening and closing bank account balances.
A budget can be prepared in a spreadsheet, either electronically or manually. 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. Once the budget has been approved, it should be added to your accounting system to ensure the organisation can compare it against actual income and expenses. If you use a cash book accounting system (either a computer spreadsheet or a manual cash book), it is still important to compare the actual financial performance with the budget see Monthly reporting later in this section.
To prepare a budget:
- start with your actual income and expenditure from the previous year (or two years if this is available) new groups will have to start with their best guess of what to expect
- add your likely payments and potential income for 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. You can then focus on what income and funding you'll need to cover that total cost.
Cash flow forecast
It is important to do some cash flow forecasting throughout the year so you can predict when there may be increases and decreases in your income. Planning your activities around these fluctuations will help 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 month by month
- add in an opening bank balance and calculate a closing balance.