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

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