A budget is an essential tool for planning a new project, making a funding application or drawing up a business plan. Budgets detail predicted income and expenditure over a specific period of time and the resulting profit, break-even or loss position. You might have a target in mind – e.g. turnover, profit, impact etc – and your budget will show how you’re likely to achieve those targets.
A budget should cover all aspects of the business or project. This allows you or your staff to monitor progress of activities and projects and to analyse likely costs and/or income providing an opportunity for them to calculate and plan changes to the budget when necessary. If you have been funded by a third party, they will want to see your budget and your performance against the budget (known as Budget vs Actual).
All budgets look at income and expenditure, the difference lies in time frame. Project budgets plan for the length of the project whereas company budgets tend to plan for a 12 month or multi-year period.
All budgets also follow a given format consisting of income, direct costs and overheads as well as including a contingency of 5-10% of the total budget costs to finance the unexpected. A more detailed explanation of what income, direct costs and overheads should be accounted for as well as example budgets can be found in our full guide.
Preparing a realistic budget
Make sure your budget is properly prepared and researched. Spend time considering labour fees, administration, essential equipment, materials and miscellaneous costs. Don’t forget to include contingencies costs.
It’s tempting to prepare budgets by costing expenses ‘well within budget’. It’s a misconception that if costs are at a minimum, the project are more likely to receive funding. The opposite is often true, with success in funding application being due to the strength of the proposal, quality of work and detailed, well prepared and researched budgets using realistic figures.
The three-step budget plan
The three-step budget plan can be a useful system when creating a new project. Although more time consuming it will help with the realisation of your project providing invaluable experience in budgeting and preparing proposals which can also be handy if you apply for financing or funding.
Budget A considers the best possible scenario and would be budget included in your business plan, or submitted to funding bodies for support. Budget B is reworked from Budget A and shows how you could achieve some savings. Budget C within the same deadline, but plans for the ‘minimum viable budget’ in order for the project or business to launch without artistic compromise.
A presentation tool
A realistic budget is an invaluable management tool. An effective way of convincing other parties that you’re organised, it shows you’ve given sufficient thought to a realistic financial plan.
To convince someone you have a good business idea, and that they should invest in it, you must show you understand the financial implications as much as the artistic ones. It will help you negotiate with them. For example, if you can show how you’ve calculated fees and what you’ll use them for, you’re more likely to persuade them to support you.
Potential funders may also want to see other financial information, for example your latest accounts, actual income and expenditure on a project and perhaps a cash flow forecast. Your budget should form the basis for these other reports and give you a clear structure for moving forward and taking decisive action.
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