When looking for funding, it is vital that your route is able to find grant-givers or funders who have a focus on tourism, local economic development, enterprise support or a related field that includes the kind of work that the route is wanting to raise funds for. It is also important that you approach them in the right way and are able to present a funding application or proposal that matches their mandate and is convincing in its own right.

This guide will describe the kind of funders you should be looking for and suggest where you can look for the ones that will suit your route or project.

The main message of this guide is that you need to do your research very well so that you target only those who have an interest in your field of work (or perhaps your geographic area); this will ensure that you don’t waste time and money chasing potential donors who have no interest in funding you.

It also emphasises that you need to network as much as possible – talking to your contacts about which funders they recommend and also talking directly to those organisations about exactly what they offer and whether your project stands a chance of getting funded by them.

You will also find it useful to read the guide How To Write A Funding Proposal.

Why is identifying the right funder important?

Every funding agency is guided by certain priorities – for instance, they may fund health or education or HIV/Aids, etc. They also usually have a geographic focus (a certain country, province, region or town), and may even have a gender (such as a dealing only with women’s projects) or age focus (wanting to target youth, for instance). Each will have a limit on the size (rand amount) of the grant that they give. These priorities will lead the funder to set certain strict conditions or criteria that you must meet before your project can be considered.

So your research needs to examine all of these aspects, and find funders whose criteria your route will meet. Then you can tailor your application so that it prioritises all the things that the funder wants to know about you.

What is a grant-giver or funder, and how do you find them?

Understanding what a funding agency is and how it does things will help you to succeed with your application. There are generally four kinds of funder:

• Government
• Church
• Private (mainly wealthy family foundations)
• Corporate.

Each has their own style, advantages and disadvantages for the fund-seeker such as your route. The table below summarises the pros and cons of each type.

Acknowledgement: Civicus (www.civicus.org).

Finding grant-givers or funders

Government: Most routes will be able to begin their search for funding at the local level, talking to municipalities and local businesses for financial support and sponsorship. In theory, both stakeholders have good reasons to support a tourism route:

• Municipalities have a mandate to encourage local economic development (many even have an LED officer) and help create jobs through this process; and
• Most local businesses will get some positive spin-off (new customers, for instance) if more tourists visit the area.

In practice, however, there are often places where funding is not easily available at local level, for various reasons, so routes may have to look further afield.

At provincial level, there are provincial tourism authorities (also called boards or agencies) that are mandated to support tourism in their region. Other provincial government departments (not just tourism) are also possible sources of grants and funding.

National government departments and agencies offer grants of various sorts.

Church: International church or faith-based funders, for instance CAFOD, International Aid and Dignity International are also concerned with socio-economic issues, so they could be relevant to your route and projects. However, since these funders are often based overseas, you will need to start by seeing if they have a local office you can talk to. If not, you may have to liaise with them almost entirely by e-mail.

Private foundations: Foundations are funding agencies with a particular focus on social needs or problems that are not being fully solved by the market (private sector services or products such as nutritious food may be unaffordable) or by government (services such as clean water and health care may not be up to scratch). Many foundations were started by wealthy families (for instance, the Carnegie Foundation and the Ford Foundation), while others were set up by large companies (such as the Eskom Foundation).

The larger foundations are better known, but explore the smaller foundations too, since it may be easier to develop a long-term relationship with a smaller entity if they are focused on your area of work. It is sometimes easier to forge closer links with a group that is more accessible and less bureaucratic.

Corporate: The private sector (profit-making companies) is a good source of sponsorship, varying from large multinational corporations to those smaller companies that may only operate in South Africa or even just in one province or town. While approaching the big companies, make sure you also build relationships with those smaller companies in your region. If a company is profitable and committed to local development, it could still make a substantial financial contribution to your work.

Narrowing your search

Before you get to the stage of phoning or writing to a potential funder, take these steps:

• Carefully research their focus or mandate – check that your route or project will fit into this focus.
• Check the amount of their grants (for instance, the size range may be R50 000 to R250 000) suits your project.
• Check if there are any criteria (region, gender, legal format, etc.) that exclude you from applying.
• Check what the process is for applying, the closing date(s) for applications, and any special format or forms that your application must use.

First approach

If there is no clear application process (some smaller companies, for instance, rely on proposals from fund-seekers and do not have a formal process for applicants), then make some phone calls to find the right person to talk to about a proposal. Explain on the phone briefly what you are looking for and request a meeting to pursue the idea further; if they are interested, they will meet with you.

Take a written overview or proposal to that meeting so that you can present the project verbally (you can even prepare a PowerPoint presentation on your laptop to take and present) as well as give the funder a written proposal when you leave. The written document is important because:

• It shows how much thought and planning you have already put into the idea – giving the funder confidence in your ability to actually implement the plan.
• It gives the person a document to share with their colleagues or superiors – who will usually have to be involved in deciding whether or not to allow the funding.

If you can, include some senior people from your Route Forum in the meeting. In addition to the project manager or funding coordinator (who finds the funders and sets up the meetings with them), you could include the Chairperson and the Treasurer – or any of the members who add weight to your argument that this is a worthwhile, community-based initiative.

Follow up

At the end of the first meeting, ask the funder for some follow-up dates when you can phone to check on progress with the application, or meet again to discuss anything else they would like to clarify. After your initial meeting with one person in the organisation, the funder may want to bring in others from their organisation to ask other questions and take the application to the next step.

It is vital that you give yourself the opportunity to reconnect with the funder after this first meeting; they will most likely have many applications to deal with and (especially if they are not well organised), and you often need to ‘chase’ them to get a decision. Even if they are not able to fund this particular proposal, you have already taken a valuable step towards building a relationship; don’t waste this time and energy by letting the link evaporate through inaction.

This organisation that you have approached should now become one of your route’s stakeholders and should be included on your publicity list to receive your newsletters, brochures, annual reports and other public information you send out to raise your profile.

Who is involved with grant-givers and funders?

As mentioned in the Guide How to Write A Funding Proposal, it is important for the route to have some clear guidelines on how it raises funds; a fundraising policy is a good idea. The aim here is to ensure that the route does not ruin its reputation by having any member going around to potential funders, looking for money for things that the route has not decided upon – or making ‘deals’ with funders on projects that are unrealistic, undeliverable or unknown to the route’s management.

So the Route Forum must nominate people who need to oversee what projects need funding, how much funding must be sought, and who will be approached. This could include the Chairperson, the Treasurer and any others whose role is linked with either the general finances of the route or the particular project being pursued. Perhaps you already have a finance subcommittee that could do this, or maybe you would prefer to set up a fundraising subcommittee with this special task.

If there is a project manager tasked with raising funds, they need to liaise closely with this subcommittee before they rush off to approach stakeholders for support.

How should your route manage its relationships with funders?

There are two main ways that your route needs to stay close to grant-givers and funders. The first, and most important, is the relationship with those who do give you funding; these relationships need to be closely and carefully managed, so that (a) your route abides by the contractual terms in the funding agreement. and (b) the link with the funder is strengthened, making it more likely to get funding again.

The second kind of relationship is with those who you have approached but who are not currently funding you. Consider grant-givers and funders as your stakeholders. In other words, don’t only communicate with them when you are receiving their money. Rather, treat them as part of your extended family who need to be kept informed of your activities and plans. This is a vital part of building relationships that will support the work and growth of your route.

Once your route has decided who is going to take overall responsibility for fundraising, this group (or person) needs to work out who can approach funders and where a record will be kept of what takes place at every approach. Meet every month to assess the progress and to adjust the fundraising plans if necessary.

As part of Open Africa, your route can learn from the experience of other routes around southern Africa – including the most likely sources of funding for various kinds of tourism projects. So stay in touch with other routes and read how they are getting things done.

Practical tips

• Keep a file of all proposals sent out, as well as a printed copy of each funder’s response.
• Nominate one person (treasurer, office administrator or fundraising manager) to consolidate all information about possible funders.
• Prepare a brief route profile that you can send to or leave with potential funders when you first meet them – just to give them a ‘flavour’ of what you do. The more detailed proposals can then be tailor-made.
• Prepare a PowerPoint presentation (with pictures) and show it to the Route Forum so they can sign it off (authorise it), then use this as the basis for presentations at meetings with funders. Slides can be added or removed, depending on the time available to present.

Use of this Guide

The Route Forum can use this Guide as well as anyone in the group tasked with fundraising responsibilities. It’s important for the Route Forum members to know that they need to oversee and control fundraising efforts, but they also need to support this. Funders are usually needed both for the route management (office, staff, daily activities, etc.) and for special projects from time to time.

Routes should take advantage of Open Africa’s links with training organisations – to get their staff and members trained in how to prepare proposals and find funders.

Other Guides

Here are some other Guides on the topic of funding and finances:

• Guide: How To Write A Funding Proposal
• Guide: How To Develop A Project Budget
• Guide: How To Develop And Manage A Route Budget

Contacts and other support

Greater Good SA is a knowledge hub for civil society that  has information on funding your NGO.

www.greatergoodsa.co.za/funding

Setting up, managing and promoting a route all takes money, so each route needs to find ways to pay for this important marketing function. These methods can include:

• Raising funds from the route members (after all, it is the members who should be benefiting directly from route activities).
• Applying for grants from government and private sector funding agencies.
• Getting sponsorship from companies who have a brand, product or service that they would like to publicise along your route.

The important thing about an income stream is that it should be regular and reliable. Sadly, grants are not generally regular or reliable, since they depend on what the funder thinks of your project and whether they have the budget to support it.

Sponsorships can be more reliable, as they represent real value that a sponsor hopes to gain by exposing their brand to the community associated with your project or route.

But what the route should be looking for is using its own resources, expertise, products, services, people, community, ideas, connections and uniqueness to generate cash – from members, the broader community, visitors, government and other stakeholders.

This Guide will describe some of the ways that Open Africa routes have raised money for their operations and projects. It will also suggest other income streams that can be considered by Route Forums, and how these can be implemented.

The main message of this Guide is sustainability: every route needs to aim at self-sufficiency, since this is the only guarantee that the work that the members’ hopes and plans can be realised. It is great to get assistance from outside funders, especially at startup stage – before a route’s activity has started to bear fruit through extra income for members. But if the route is really serious about the plans it wants to implement, it cannot always be waiting for outside help to make these things happen.

Why is it important to identify income streams?

The main reasons for trying to find different income streams is to put the route on a solid financial footing, so that it can plan ahead and know that the money will be there to meet the basic costs of running the route. It is disheartening to make plans and raise members’ expectations about what the route will do, only to have everything come to a halt when your funding proposal is turned down.

Rather keep your plans more modest so that they can be internally funded by members; then grow this income as the route’s work starts to bear fruit.

What is an income stream, and how do we generate them?

An income stream is simply the flow of money that a business can generate; your route is essentially a business – although it does not aim to make a profit, it does have costs so it needs an income to meet them. As noted, grants are not a very reliable or sustainable income – so this Guide will look at income streams that can make the route more independent and self-reliant. This will allow it to do things that the members want to do, rather than what funders think you should do.

Open Africa routes have already put the following ideas into action, and they can work well under the right conditions:

Membership fees

A number of routes charge its members (the businesses or participants on the route) a membership fee, in return for some valuable benefits. Every route needs to be clear about what benefits it will offer, and then deliver these! Don’t overpromise, but make sure that there is value to be found in the fee, or you will struggle to keep and grow your membership base.

Start off by minimising the costs of running the route, so that the fee can be kept small. Raise the fee only when you can show that the benefits are real and that the route can deliver more value if it is better resourced.

Route levies

Some routes charge their members a route levy – a percentage of each sale that they make. For instance, accommodation providers would pay a levy per room; the levy may even appear on the customer’s account, and may be added to the accommodation, food and drink items. (The provider would have to show the total fee per night when advertising so that it is not an ‘extra item’ that the customer is not aware of.)

Activity operators would pay a levy per activity, and a similar arrangement could be made for crafters, restaurants and other members.

Competitions

A number of routes have been successful at raising funds through competitions. The se competitions raise money from people paying to enter and can be run in local media or further afield to draw new visitors to the route. Route members are then asked to sponsor accommodation and activities as prizes.

Marketing projects

Many of the route’s management activities will be marketing projects that aim to raise the profile of the route and its members. While these can be funded by member contributions, they can also become income streams – if you think creatively.

• Can you charge customers for the material? The Drakensberg Experience route, for instance, wanted to produce and distribute 10 000 brochures with an area map and information on its members for circulation at selected points on the N3 highway. They charged R10 per brochure, ensuring that they covered their cost and had a surplus towards the next print campaign.

• Can sponsors be brought into your marketing material? If there are larger stakeholders in your area that are also looking for publicity, they could sponsor the production costs in return for branding on the brochure. For instance, your local/district municipality, the franchisor of petrol stations on your route (Shell, Engen, Caltex, etc.), or the owners of mines in your area could be approached.

• By charging a sponsorship fee that covers more than just the costs of the design and printing, the route can earn a surplus that can be ploughed back into its operations.  

Other possible income stream ideas

• The route’s members are each involved in specialised areas of activity. The route – through its links with stakeholders such as government and big business – may be able to facilitate contracts to larger customers on behalf of its members (for instance, a provincial government department may require craft items for a special event). If the member is unable to negotiate the contract itself, and the route management makes it possible, then the route should be able to earn a commission or some portion of the income for arranging this.

• Arrange special events for the towns in your route (harvest festivals, fruit-picking, children’s activities, historical tours, etc.), and look for ways that visitors could pay an entry fee or members could earn extra income that can be levied by the route.

• Trade shows add value to your members by exposing them to possible customers in new markets. The route can arrange these on a regular basis, and can add a small management fee to be paid by each attending member. These will add up, especially if you can grow the number of members in your delegation and make it a regular event.

Who is involved with identifying income streams?

The Route Forum’s Treasurer is usually responsible for managing the route’s finances, but this is mainly a control function, and the person doing this might not be the sort of person who is good at fundraising or developing income streams. The Route Forum may therefore want a separate portfolio for fundraising, which would require someone skilled in sales and marketing. That person could also drive the search for income streams that generate regular cash flow for the route.

This person would need to work closely with the Route Forum’s Treasurer and Chairperson and may require a subcommittee to help with the workload. When trying out various projects that could earn an income, the fundraising portfolio could even appoint a project manager (perhaps a route member) for each project. This would help spread the workload and ensure regular involvement by members.

How should your route manage its income streams?

The Route Forum needs to keep a close eye on how it earns income. Whether it is the Treasurer, the fundraiser or a project manager that is running an income-generating project, they need to present clear plans to the Route Forum and have those plans approved before embarking on the work. The Route Forum should also present a financial summary at each AGM (or general meeting). 

A timetable should be in place to show what will be done when, and by whom; importantly, the plan must show how much a project expects to earn, and when that income should reach the route’s bank account. The route administration needs to help manage the invoicing and control of cash flow as this will help the Route Forum to check that money is being properly handled (especially if there is cash involved in the transactions). Similarly, this should be presented and approved at the AGM (or general meeting). 

Practical tips

• Encourage members to come up with ideas that could lead to income for the route.
• Keep members involved in this process, so that they can offer their services or products from time to time.
• Task the treasurer to keep track of costs and benefits of each income stream. Those running the project might not be fully aware of what the full costs are to the route; it is vital to know that income is more than expenditure.
• Make full use of the visual beauty of your area – while you may take it for granted, the images you see around you every day may be regarded as spectacular, unusual or special by potential customers elsewhere. Consider calendars, posters and cards as products your route can sell at retail outlets throughout your region (as long as the route is not competing with a member!).

Use of this Guide

The Route Forum can use this Guide as a thought-starter, as it explores ways of making money to cover its running costs and activities. In particular, the Route Forum’s fundraising portfolio can use it to help brainstorm possible income stream ideas; this can be done by bringing enthusiastic and creative members of the route together on a regular basis – to share ideas and begin the process of trying out various options.

Routes should also talk to their stakeholders to see what services and products they regularly require, and assess whether the route and its members are able to supply any of those as an income-generating activity.

Other Guides

Here are some other Guides that will help you on the topic of income and finances:

• Guide: How To Write A Funding Proposal
• Guide: How To Develop A Project Budget
• Guide: How To Develop And Manage A Route Budget
• Guide: How To Develop A Marketing Plan
• Guide: How To Attend Travel Shows

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

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

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

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

Contacts and other support

Every organisation needs money to run its operations and projects. It needs a bank account to receive deposits and to make payments. And while many organisations and small businesses operate in a mainly cash environment, it is good financial practice (especially for a nonprofit organisation serving its members) for all cash to be put into a bank account before it is used. This makes it easier to keep track of income and expenditure.

With the advent of internet banking, most bank accounts now come with many time-saving advantages and features that help manage and monitor your route’s finances more easily.

A bank account is more than just a place to keep cash for the organisation, it is also an important tool for keeping financial records of income and expenditure, and for complying with company and tax laws. Like any system in your organisation, however, it must be well managed and well controlled. In any matter related to money, there must be strict control over who has access to the bank account and for what purposes.

This Guide will explain how to find a bank account that suits the needs of your organisation, and will provide some ideas about how to make the most of your banking facilities.

The Open Africa Toolkit describes how to constitute your route as a legal entity, and this entity is the legal person in whose name the bank account will be opened.

The Guide emphasises that using your bank account in an efficient and responsible way will help to keep your organisation compliant and well managed. This starts with the election of the Route Forum, and within this committee, a financial manager, who will generally have most to do with the money and bank account, but only in conjunction with other specified members of the committee – usually the Chairperson and the Administrator.

There are other Guides you will find useful on matters related to banking and finance, such as managing a route budget and route finances, as well as how to report on route finances and how to remain compliant with the law.

Why it is important to have a bank account

A bank account allows the route to keep track of is income and expenditure, especially if the bank provides you with a monthly statement. With internet banking, it is also easy to generate statements at any time, to monitor deposits and payments, to check on activity in the bank account, and to make electronic payments.

All this makes it easier for your accountant to audit your financial affairs and produce an annual financial statement for the SA Revenue Services; the latter is a requirement for the route to comply with tax law. Without such compliance, SARS will not issue your route the Tax Clearance Certificate you will require to do business with any government department or agency or any large corporation.

Your bank statements will also be primary documents for the Route Forum to inspect in its role as monitor of the organisation’s good governance.

How to open a suitable bank account

When choosing a bank, consider the following things:

• Geographic location: Choose a bank that is close to where your route office is based. Although you can do much banking online, there are some things you will have to go into the bank to do, especially when you are first setting up your organisation.
• Banking fees: Banks charge differently for their services. Once you know which banks are close to you, visit each one and request a schedule of fees or a pricing list. If there is anything on this document you don’t understand, ask someone to explain it to you. You can then compare the fees to find out which bank will cost you less. What kind of transactions will you be doing most?
• Service: You might decide that good service is more important than a small difference in costs. How many tellers are open and how slow is the queue? Is the person at the information desk helpful? Are your questions answered to your satisfaction? What kind of service do you get from the person who answers the phone?
• Reputation: Ask your colleagues and other local organisations how they feel about their bank and branch. This is a good way to find a particular branch that has a good reputation. Listen to what people say about their bank and then research the branch yourself.

How to choose the right kind of account

Depending on the bank you choose, you should be able to open one of the following accounts:

• Business savings account: This is a basic transaction account for deposits, withdrawals and transfers. You can get an auto-teller machine (ATM) card, and you will be able to apply for internet and telephone banking.
• Business cheque account: This account will provide you with a cheque book. Some banks also provide you with a cheque card, which works like a debit card. A business cheque account will allow you to apply for an overdraft, but probably only after the account has been open for between three and six months (depending on the bank). If your business has been open for some time already and you are able to show a regular flow of cash, some banks might consider giving you an overdraft. This would depend on the financial history of your business.
• Investment account: If the organisation receives income or funding in lump sums, you can consider opening one of a range of investment accounts – such as a seven-day or 30-day call account, or a money market account – which will earn you some interest on the money held there.

When you are choosing an account, think about whether you will need the following services:

• Overdraft or other credit facilities. If you are likely to apply for credit at any stage in the future, you want to be sure that your business transactions until then give you a positive profile at the bank. There are some business accounts that do not qualify you for credit, and these can be difficult, costly and time-consuming to change at a later stage.
• Internet or electronic banking. Banks may or may not charge a fee for internet and electronic banking services, but using these is often cheaper than visiting the branch to do your banking. Electronic banking includes self-service terminals (which are open 24 hours to do deposits, transfers, get statements and pay accounts), cellphone and telephone banking.
• Point-of-sale (credit and debit card) machines. If you require point-of-sale (POS) facilities, make sure that the bank can provide these with the account you are opening. POS facilities are usually managed by a different department at the bank, but the business banker who helps you open your account will be able to put you in contact with the right people.
• A cheque book. Although cheques are becoming an expensive and outdated method of payment, you might decide that it is easier to control payments if the organisation issues cheques. Some banks offer cheque cards, which work like debit cards, and these are often useful for retailers that won’t accept cheques. Remember that there is the risk of cheques being used fraudulently, which is why they are often refused. They also usually cost much more than electronic transactions, if they are not included in a package of services.
• Credit or garage cards. Some accounts will provide you with these cards, but remember that these services require credit, and you may have to wait a few months (to develop a good credit record) before applying for them.

How to open an account

The process of opening an account is different from bank to bank, but you are likely to need the following:

• If your route is registered as a company with the Companies and Intellectual Property Commission (CIPC), you will need to show the bank the CIPC registration documents. If there have been changes made to the business since startup, you will also need to show the relevant CIPC documents.
• Identity documents for all directors of the company.
• Proof of residence for yourself (if you are a sole proprietor), or for all company directors. This can be an account, such as electricity or phone bill, addressed to you. It should not be older than three months.
• Proof of the physical address of the organisation. This can be a business letterhead, for example.

Depending on the bank, either all company directors or a minimum of two directors need to be present to sign when the account is opened. If the bank doesn’t require all directors to be present, you should ensure that the directors have all signed a resolution nominating the chosen director to act as signatories on the account. Have this on hand to present to the bank if they ask for it.

You will probably need to have an opening balance (that is, money in the account) of between R200 and R500, depending on the bank and the account.

Who is involved with the bank account

The Route Forum must manage the finances of the organisation; particularly, the people on the committee dealing with money and the bank account will be the Financial Manager, the Chairperson and the Administrator. It is important to have at least two or three signatories, and at least two must authorise each payment that is made from the account; this is a basic requirement of good financial governance. It makes sense to have about four members of the committee authorised by the bank to be signatories, so that if one or two of them are not available, there will still be two people who can authorise a payment or other bank function.

How to apply good banking practice to the route

As part of the route’s governance procedures, it needs a financial policy to outline how the organisation will manage its money. This will include clear guidelines on who is authorised to carry out banking activities, and puts in place controls to limit the likelihood of abuse of funds.

Practical tips

• Before you go in to open an account, try and get a written checklist of all the documentation they will require then leave yourself plenty of time – it can be a time-consuming process.
• Remember that you have not committed to any account or other facilities before you have signed an agreement. If you begin an application with one bank and change your mind before signing, you are free to choose another bank.
• Service charges are usually not negotiable. The branch you bank with charges for services according to corporate policy, which is set by their head office.
• Check on the bank’s turnaround time for opening a bank account. It is unlikely that you will be able to shorten this, and it would be unfair to expect your banker to try.
• Not all banks can help you if you just walk into the branch. A business banker might only be able to see you if you have made an appointment. Phone first to check the procedure.

Use of this Guide

The members of the Route Forum can use this Guide – particularly those in administration and financial portfolios on the forum – to check on how the organisation’s bank account should be opened and operated.

The Route Forum must keep a close eye on the bank account and banking activities – not just to ensure that it has enough money to carry out its activities, but to guard against anything that might suggest a lack of financial discipline. The Open Africa Charter emphasises “integrity, honesty and complete transparency in maintaining impeccable credibility” as one of its core values. This applies very strongly to how the organisation manages its finances, which helps protect the route’s survival. Also, suspicion of financial mismanagement would make it very difficult to apply for funding from donors or government.

Other Guides and Resources

Several Guides will assist you in making your route compliant. These include:

• Guide: How To Remain Compliant With The Law
• Guide: How To Serve As Route Treasurer
• Guide: How And When To Register For Tax
• Guide: How To Develop And Manage A Route Budget
• Guide: How To Adopt A Constitution As A Voluntary Association
• Resource: Template: Constitution Of A Voluntary Association

Other resources

This is a useful website for comparing banks, bank accounts, features and pricing:
www.justmoney.co.za

Most routes will operate as voluntary associations, nonprofit companies or co-operatives, getting their income from grants, sponsorships and member contributions. They do not aim to make a profit and any surpluses that may be generated from their work will be ploughed back into the organisation to serve its members.

As nonprofit organisations, routes can get special treatment when it comes to paying tax, but this is not automatic.

This Guide will explain the different kinds of tax that routes are required to pay and how to register for tax in order to remain compliant with our taxation laws.

The main message of the Guide is that all routes need to register as taxpayers with the SA Revenue Services (SARS) as soon as they are legally established, so that they can begin the process of getting any special treatment they may be entitled to. Even if the route does not end up paying income tax for its own operations, it must still talk to SARS about the income tax of its employees.

Why registering for tax is important

The Income Tax Act demands that Corporate Income Tax (or ‘business tax’) is paid by businesses incorporated under SA’s laws and which derive income from within the country. This business tax is applicable but not limited to a range of business forms including private companies, close corporations, co-operatives and public benefit companies. The usual rate of business tax is 28%, but small businesses are given a certain gross income threshold below which they don’t pay tax.

It is against the law not to be registered for tax, and fines can be levied for trading without being tax registered or not submitting an annual tax return.

In addition to registering your organisation with SARS, you also need to be registered as an employer if you have staff earning a regular salary within your organisation. This is because SARS relies on employers to deduct income tax from employees and to pay that income to SARS on the employee’s behalf. Failure to do this is also against the law.

The route may also want to register as a value-add tax (VAT) vendor, so that it can claim back the VAT that it spends on supplies and other purchases, but this does require more paperwork and means that the route must charge VAT on all services or products that it sells.

How and when the route must register for tax

As soon as the route is registered contact SARS to find out the easiest way to register the organisation as a taxpayer. The SARS helpline can give guidance on this, and the website (www.sars.gov.za) is also helpful; or you can go to the nearest SARS office in your city or town, and they will help you with the paperwork.

This will include registering as an employer if there are staff members in the organisation; the route will usually have to deduct income tax (pay as you earn tax or PAYE) and pay this to SARS every month. Remember that you will also need to be registered with the Department of Labour as an employer and must pay Unemployment Insurance Fund (UIF) contributions to the department every month.

Public benefit organisations

SARS is allowed to give preferential tax treatment to nonprofit organisations, but this has to be applied for and certain conditions have to be met. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a public benefit organisation (PBO) by SARS’s tax exemption unit (TEU).

The conditions and requirements for an organisation to be approved as a PBO are contained in section 30 of the Act, while the rules governing the preferential tax treatment of PBOs are contained in section 10(1)(cN). Section 10(1)(cN) provides for the exemption from normal tax of certain receipts and accruals of approved PBOs. Certain receipts and accruals from trading or business activities will nevertheless be taxable.

So the next step after registration is to apply to SARS for PBO status. If the exemption application is approved, the route can be registered as a PBO and allocated a unique PBO reference number.

Approved PBOs have the privilege and responsibility of spending public funds, which they derive from donations or grants in the public interest on a tax-free basis. The donations or grants may be received from the general public or directly or indirectly from the State. It is therefore important to ensure that exempt organisations use their funds responsibly and solely for their stated objectives without any personal gain being enjoyed by any person, including the founders and the fiduciaries.

Approved PBOs must continue to comply with the Act and related legislation throughout their existence. This includes the submission of annual income tax returns on an IT12EI form. The income tax return enables the Commissioner to assess whether the approved PBO is operating within the prescribed limits of the relevant approval granted and to determine whether the partial taxation principles must be applied to receipts and accruals derived from a trading activity or business undertaking that does not qualify for exemption.

Submitting annual tax returns

Every registered taxpayer is required to submit a return of income 12 months after the end of the financial year. Returns can be submitted electronically via e-filing or manually at a SARS branch where the taxpayer is registered.

In addition to annual returns, every business is required to submit provisional tax returns. These returns are required to be submitted every six months and must contain estimated figures of total revenue earned for that period and to pay over taxes in respect of the income estimated for that period.

The first provisional tax payment must be made within six months from the beginning of the year of assessment, the second payment must be made on or before the last day of the year of assessment, and the third payment must be made seven months after the year of assessment for taxpayers with the end February year-end and six months after year of assessment for all other cases.

Who is involved in paying tax

The finance manager of the Route Forum, together with the Administrator, will usually be the ones to deal with SARS on tax-related matters, such as preparing the annual returns and the monthly PAYE payments.

How tax applies to the route

While most routes should be able to qualify as PBOs and avoid paying any tax, the experience that the Route Forum has in dealing with SARS should be regarded as valuable expertise to share with members. Many small businesses – route members included – are nervous of dealing with SARS for fear of losing out financially in some way. The Route Forum or office could use its knowledge of tax matters to help fellow members to become compliant and thereby get better access to business opportunities.

In the Guide on how to remain compliant the importance of the Tax Clearance Certificate from SARS is emphasised; this certificate confirms that a business is financially checked by an accountant and is up to date with its taxes (many small businesses will in fact not have to pay tax if their profits are not very high). Most government agencies and departments will only do business with entities that hold this certificate, so it is a valuable tool for generating new business.

Open Africa emphasises that success can only come from commitment and professionalism – both of which are vital in the tourism sector. Being tax compliant will help every member of every route to improve their systems and get better at what they do. This is how a successful route is built – on the success of each of its members.

Practical tips

• Don’t delay when dealing with SARS; rather talk to it as soon as the route is registered, so that you are clear about what you have to do.
• Keep all your tax-related forms and information safely in lever-arch files; then, if you ever have a query, you can take everything to SARS (or to your tax advisor) in an organised fashion.
• Have a look at all the online tools that SARS has put in place to allow e-filing; doing things online can save time and perhaps even unnecessary travelling and waiting in queues at the SARS office.
• The Route Forum can consider facilitating a tax advisor to serve all members at a reduced rate, especially if the route is far from the nearest towns, an advisor would not mind doing some travelling if they could see five clients in one trip rather than just one client.

Use of this Guide

The Route Forum can use this Guide – particularly the administration and financial portfolios on the forum – to check whether it is compliant with tax law. This Guide also gives the forum some guidance on how to deal with these. Route members can also use this information in their own businesses, because all enterprises must be registered with SARS.

Remember that the Open Africa Charter emphasises “integrity, honesty and complete transparency in maintaining impeccable credibility” as one of its core values. Being registered for tax is an important part of being transparent and credible; it also simply makes your enterprise less risky and more sustainable.

Other Guides

These other Guides are relevant to the issues of tax and compliance:

• Guide: How To Serve As Route Treasurer
• Guide: How To Remain Compliant With The Law
• Guide: How To Open A Route Bank Account
• Guide: How to Develop And Manage A Route Budget

Contacts and other support

SARS collects taxation revenue from businesses and individuals, giving government the money it needs to keep the infrastructure of the country in good shape. Businesses must register with SARS when they set up, and pay tax regularly on their profits and on behalf of employees.
Tel: 0800 00 72 77
Fax: 012 670 6880
Website: www.sars.gov.za

The Department of Labour ensures that the relationship between employers and employees is fair and that employees are protected by the law. There are a number of useful guides on the department’s website that explain what you need to do to comply with labour laws. To find the department’s office closest to you, go to www.labour.gov.za/contact/center_offices_display.jsp.
Tel: 012 309 4000
Fax: 012 320 2059
Website: www.labour.gov.za

The Companies and Intellectual Property Commission registers companies, trusts, patents, designs and trademarks. (The CIPC has taken over the role of the Companies and Intellectual Property Registration Office or Cipro).

Tel: 086 100 2472
Fax: 086 517 7224
E-mail: info@cipc.co.za
Website: www.cipc.co.za