All organisations should aim to have at least revenue and cash flow budgets. Managing budgets involves two processes: preparation and control.

Some costs can be calculated with precision – for example, knowing annual rent – while others are more a matter of estimation – such as photocopying and transport costs. In preparing a budget, it is useful to keep clear notes on how figures have been arrived at.

Activities and services need to be fully costed, so that the direct costs of the project or service and a relevant share of the overheads are included. This ensures Full Cost Recovery.

Budgets should be managed over set timescales that are realistic and, ideally, fit in with your funding arrangements – allowing finance staff to complete their tasks in time for grant claims, for instance.

Cash flow budgets are an immediate signal of financial status and are vital, as they ensure your organisation is aware of when there will be shortages and surpluses during the year. A known or anticipated cash flow shortage can be planned for, for example, through arranging an overdraft facility. It’s also important to know if there is a surplus: left idle in a regular bank account, when it could be earning interest in a separate high-interest account. Budgets help answer three questions:

• How are we doing?
• How much of the budget is left?
• What will it look like at the end of the year?