Your route is likely to implement projects fairly often to promote your area and members. These will usually cost money to implement, and so a budget will be necessary to ensure that the project is affordable and can be fully implemented with the available money. The project budget will need to be separate from the budget that you use to manage the route itself, so that you know how much can be spent and when.

This Guide explains how to prepare a budget for a specific project, considering what the project will involve (what tasks need to be carried out), how long it will last, and which project tasks need to be paid for from the project budget.

The central message here is that financial management is a key part of managing projects successfully. You will need to manage the funding for every project carefully, especially when the funding is from an outside donor with whom you want to build a longer-term relationship.

A number of other Guides may be useful on related topics, such as How To Manage A Short-term Project and How To Develop And Manage A Route Budget.

Why is a project budget important?

For every project that is going to take money to implement, a budget is both necessary and important, for these reasons:

• In the early stages of the project, it helps to work out whether or not the project is affordable. Rushing into an activity before working out the costs is risky, since it may drain cash that was meant for other things, or the activity may simply fail because the money ran out before it could be completed.
• Working out a budget in advance allows you to take the idea to outside funders as a proposal – to apply for a grant or sponsorship.
• A budget helps to structure the implementation of a project, forcing you to get accurate estimates from suppliers and clarifying your deadlines for procurement and delivery.
• By summarising all the costs in a budget, it is easier to see in advance whether a project is value-for-money, as you can more clearly compare the cost with the expected impact or return.

What is a project budget and how is it used?

A project budget is a week-by-week or month-by-month forecast of how much money is to be spent on which cost items. Usually, after a project is approved, a certain amount of money is made available (either from the route or a donor), and this forms the basis of the budget. All expenditure is then drawn from this amount, and the budget ensures that the spending does not exceed the available amount.

It therefore looks similar to a route’s annual budget for operations, but will be focused on what needs to be done to complete the project.

Project plan

The project plan will outline what needs to done, setting out which tasks need to be tackled first, which tasks must follow, and which tasks can be carried out at the same time. What the project budget does is to provide the costs of each of these tasks, activities or jobs – and indicate when the money will have to be paid out to get those tasks completed.

The simple project expenditure budget below illustrates how this could be done with a small building project that will last from January to June:

 Project expenditure budget

Project to build a craft sales room	Jan	Feb	Mar	Apr	May	Jun
Design and planning	R 20,000
Earthworks and foundations		R24,000
Utilities and services		R15,000
Bricklaying, door-frames and window frames			R34,000
Roofing and flooring				R43,000
Plastering and tiling					R 32,000
Internal fixtures						R 38,000
Total payments	R 20,000	R 39,000	R 34,000	R 43,000	R 32,000	R 38,000
Consolidated payments	R 20,000	R 59,000	R 93,000	R 136,000	R 168,000	R 206,000

By adding another column called ‘Actual’ to record what is actually spent each month after the project starts, you can compare the budgeted figure to the actual figure and quickly see any overexpenditure or underexpenditure.

This is useful to get an early warning of overspending, so that the reasons can be investigated and the problem can hopefully be solved before it happens again. Below is the sample simple project budget with a column for actual figures (only January to March are shown here, so that the contents of the table are easier to see).

Table comparing Budgeted and Actual spending

	Jan		Feb		Mar
	Budget	Actual	Budget	Actual	Budget	Actual
Design and planning	R 20,000	R21,000
Earthworks and foundations			R24,000	R22,000
Utilities and services			R15,000	R16,000
Bricklaying, door-frames and window frames					R34,000	R34,000
Roofing and flooring
Plastering and tiling
Internal fixtures
Total payments	R 20,000	R 21,000	R 39,000	R 38,000	R 34,000	R34,000
Variance	R 1,000		R 1,000		R 0

Budgeting for income

Some projects may not be lucky enough to start off with a lump sum in the bank ready to be spent – the money may have to come in installments, with just part of the total required being available at the start and rest arriving later. In this case, the project budget must include an Income column, which will show how much money is available each month. The project schedule will then have to be planned according to what can be afforded each month.

Who is involved with the project budget?

With most projects, there must be a person who will take overall responsibility for planning what must be done, coordinating the input of everyone involved, and implementing the plan. This person – usually the project manager – will also be responsible for the project budget, although the route’s financial manager will also need to be involved to help develop the budget and to sign off the final budget (on behalf of the Route Forum).

The project manager could also put together a budget team made up of the key people implementing the project (who may include contractors or other outside experts). Every week, the budget team can meet to confirm that they are sticking to their specific budgets, or to raise any concerns about the financial side of their particular aspect of the project.

How is a project budget used by the route?

Any project that a route wants to tackle will have to be discussed, investigated and passed by the Route Forum before it can go ahead. The Route Forum will also have to see the project budget, to check that it is coherent, reasonable and affordable.

The Project Manager will need to present both the project and its budget to the Route Forum and to make any changes that are considered necessary. Again, the financial manager will usually be involved in helping research and write up the budget.

Practical tips

• Do the project plan first. This will give you a better idea of what needs to be done at every stage of the project, and the order in which the various tasks must be tackled. Then it is easier to see how much needs to be spent, and when it will be spent.
• Be clear on what the main costs will be. Research the rates that people will charge for their inputs, for instance, and speak to suppliers and consultants so that your estimates can be accurate.
• Be prepared to change the figures you have put into the budget. If the total cost is too high, you will need to trim costs somewhere and find other ways to get it done for less.
• It is likely that certain costs will occur that you did not expect, so allow for a reasonable contingency in the budget (an extra amount that you may or may not need).

Use of this Guide

This Guide can be used by the manager of a project and the financial manager of the Route Forum, to help ensure that the implementation of the project can be done with the resources that are available. Route members can also use this information in their own businesses, as most of them will have projects of their own to do from time to time.

Other Guides

Here are some other titles related to finance and budgeting:

• Guide: How To Develop A Project Plan For A Short-term Project
• Guide: How To Manage a Short-term Project
• Guide: How To Develop And Manage A Route Budget
• Guide: How To Open A Route Bank Account

A budget is an estimate of what you expect your route to earn and spend in the year to come. Budgeting allows you to check how your route is performing financially from week to week, or month to month. Without a budget, you would not know how much was available to spend on which activities.

This Guide explains how to prepare a budget for your route, taking into account your planned expenditure and planned income. It will also explain how to use the budget to support your priorities and control your spending.

Also look at the Guides on how to manage route finances, how to manage a project budget, and how to report on route finances.

Why is a budget important?

A budget can be seen as the financial expression of the route’s priorities and plans. Budgeting does not exist in isolation but is linked directly to what the route wants to do in the coming year and how it will achieve its aims. The budget is therefore an enabling tool, setting out how much the route will spend, when it will spend it, and what it will spend it on.

By planning a budget alongside the planned activities for the year, the Route Forum can check whether it has the resources to do what it wants to do. After all, there is little point in making plans if there are not the financial resources to carry them out.

The budget also provides a regular yardstick or benchmark against which the actual expenditure for each month can be compared. If the actual expenditure is much higher (or even lower) than the budgeted expenditure, then questions must be asked about why this is the case. It is therefore also an important governance tool for the route and its members.

What is a budget and how is it used?

A budget is a forecast or prediction of the route’s income and expenditure for the year – and it is usually split up into months. The example below shows a simple budget for three months, with a profit/loss calculated from the income minus the expenditure. A budget can also include a line for running balance to indicate how much money there should be in your bank balance; this is only a rough estimate, though, because it assumes that cash will come into the account in the month that a sale is made. This is often not the case, as customers (and even donors) do not always pay immediately or on time.

Simple budget for three months (a budget is usually done for a year, but this is three months to make it easier to see):

Budgeting for income

Depending on how your route raises its money, you can fill in the line items that are relevant to you. In the example provided, the route gets its income from three sources: membership fees, route levies, and sponsorship from large corporations. It is not always easy to know exactly how much income will be raised in each month, since it is sometimes difficult to get sponsorship confirmed so far in advance. However, the budget is meant to be an estimate and a tool, so the figures will be what the route is aiming for.

What is important is to use the budget as a goal, and then assess every month how close you have come to achieving that goal. It is not a disaster if an income target is not reached, but it does show you that something must be done about the income in order to meet the expenditure the budget has forecast. Either the income needs to be found somewhere else, or the expenditure must be reduced – if only temporarily.

In other words, the budget must be used for planning and for corrective action. It will show you where you might be going off course, so it must be looked at regularly (at least every month) by the Route Forum, which must come up with solutions if there are problems in getting enough income or in keeping expenditure under control.

Budgeting for expenditure

Working out how much the route needs to spend each month is usually an easier task than estimating the income. This is because the route should be able to plan what resources it needs (office, staff, phone, travel, stationery, etc.) to do what it has planned to do for the year.

Expenditure items usually include items such as office space rental (plus electricity, water and rates), the landline telephone (and broadband) account, a certain allowance for cellular phone calls by staff and committee members, stationery, printing and travel costs. Each route will have its own requirements, and most will try to keep these costs as low as possible (by donating office space, for example) until the route’s income is well established.

There will be unexpected expenses from time to time, but these just need to be discussed by the Route Forum and agreed before the money is spent. The budget helps here by putting a limit on what the route wants to spend each month and requiring a definite decision before anything extra is spent. This way, it is not left up to the administrator, for instance, to decide he or she can go over budget with the spending.

Applying the budget

As noted, the budget must be put to use by the Route Forum before it can be useful (don’t leave it in a file on the shelf until next year!). This means looking at the budget at each monthly meeting, and comparing the route’s actual income and expenditure with the budgeted income and expenditure.

By simply adding another column to the budget example provided, you can see that this process becomes fairly easy. Putting a Budget column and an Actual column next to each other makes it easier to compare the two numbers. The Route Forum’s financial manager or administrator can fill in the Actual figures after every month by using the income and expenditure figures on the bank statement for that month. Putting the Actual figures in a different colour can also be useful.

In the example below, the actual income and payments have been recorded for January, so this may be what the Route Forum would see when it gathers for its February meeting. The method used here is to use different colours to highlight how the Actual figure compares to the Budget figure:

• If the Actual income was lower than the Budgeted income, it represents a possible problem, so mark it in red (signifying danger!); if actual income is on budget (or better than budget), mark it in green.
• If Actual expenditure is higher than Budgeted expenditure, then mark it in red; if Actual spending is on budget (or below budget), mark it in green.

Table comparing Actual with Budgeted income and expenditure each month

	Jan		Feb		Mar
	Budget	Actual	Budget	Actual	Budget	Actual
Income (receipts or money received)
Contributions by members	R 5,000	R 4,766	R 5,000		R 5,000
Sale of sundry products	R 2,000	R 2,560	R 8,000		R 12,000
Sponsorship	R 10,000	R 10,000	R 3,000		R 0
Total receipts	R17,000	R17,326	R16,000		R17,000
Payments (expenditure or money paid out)
Rent	R 3,000	R 3,000	R 3,000		R 3,000
Wages	R 7,000	R 7,000	R 7,000		R 7,000
Stationery and printing	R 4,000	R 3,457	R 4,000		R 4,000
Telephone and broadband	R 900	R 986	R 900		R 900
Transport	R 1,500	R 1,397	R 1,500		R 1,500
Total payments	R 16,400	R15,840	R16,400		R16,400
Profit/Loss	R 600	R 1,486	-R 400		R 600
Running balance	R 600	R 1,486	R 200		R 800

Another useful column can also be added to each month: Variance. This is the difference between the Budgeted and Actual figures, expressed in rand. It is useful because it can then be clearly seen how much of a gap exists between what your route expected and what it achieved. The Variances can then be totalled up, giving the Route Forum a clear indication of financial challenges or successes.

Who is involved with budgeting?

The Route Forum’s Treasurer will usually be the one tasked with preparing the budget. They may work on this with the administrator (especially if the administrator must manage the financial paperwork) and even the Chairperson (who often is the person with an overview of everything going on). If the route has office staff, then they may also give inputs – perhaps they are having challenges because certain resources are not being fully provided for by the existing budget.

How is a budget applied to the route?

Once a draft budget is compiled, then the Route Forum needs to see it and discuss it more fully. Only once this is done can it be presented at the AGM for members to consider and approve. Once the budget has been approved in the AGM, it can then be officially implemented by the route as the framework for what can be spent.

A budget is not just a vital internal tool for planning and governance in the route, it is also a key ingredient in your funding applications. Funders and sponsors want to be assured that your route is clear about what it will spend its money on, and that you are not just guessing the amount you have requested. Remember that all funders need to account for how well their donations are spent, so the amount that you request must match the actual impact that your activity has on the route, the community and the local economy.

When you apply for funding or sponsorship, therefore, you must include a clear budget of how the money will be spent. Your case will be strengthened if you are able to show budget (and actual) figures from previous years, which show that you are competent at estimating and controlling your expenditure.

Practical tips

• Know why you are budgeting – keep in mind the importance of controlling spending and staying ‘in the black’ (spending less than the route can earn).
• Have accurate data of your route’s spending – keep good records of all invoices and receipts.
• Have a simple budgeting tool that you understand how to use – start with pencil and paper if you must. There are computer programmes that can help, but don’t use them if you find them too complicated. Rather understand what you are doing.
• Be realistic. Budgeting is like planning a diet – it’s not going to work if you expect too much too soon. Take small steps – especially when starting up.
• Update the actual amounts in the budget every month, and circulate them at the Route Forum meetings, so that the forum has an overview of financial matters. This is vital, since the solution to any problems in spending or income will have to start with this group.

Use of this Guide

This Guide can be used by the Route Forum’s Treasurer and administrator, as well as other members, to allow them to become familiar with the basics of budgeting.

Route members can also use this information in their own businesses, because all enterprises have to budget in one way or another.

Other Guides

Here are some other Guides related to finance and budgeting:

• Guide: How To Develop A Project Budget
• Guide: How To Open A Route Bank Account

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