Back to basics: budgeting

John O'Brien's monthly guide to getting the simple things right.

We can learn a lot from our kids. Give them £10 on a shopping trip and they'll spend £10. Give them £20 and they'll spend £20. It's the same in your organisation.

A budget could be described as 'a plan expressed in money'. Your trustees agree what you want to do, and then someone works out what it will cost and (I hope) how it will be financed. From time to time, those in charge report to the board on how the reality matches up to the original plan.

This morning I was asked: "Is there £500 in the budget for a training course I've seen?" My response was: "That's irrelevant; just convince me you need the training."

The training budget is a provision, not an entitlement. It's an estimate of what we think we might need to spend, perhaps looking at the previous year's outlay, in order to achieve our objectives. When we set the budget for training it is not an absolute limit. In reality, we might need to spend more - or less. If you need the £500 and this results in an overspend, then whoever takes the decision needs to be able to justify it.

There's nothing worse than the 'spend it or lose it' culture when it comes to budgets. The end of the year approaches and suddenly all sorts of equipment is purchased and training courses undertaken.

I haven't had a lot of luck installing this kind of budgeting in my kids. They still rush out and buy new shoes as soon as they have the money.

- John O'Brien is chair of the Community Accounting Network and chief executive of CA Plus

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