How to prepare a financial forecast
Charities face particular problems in forecasting their income flow. Voluntary donations depend upon support for the mission, but public concern about an issue may wane. Other intangible factors, such as changes in legislation, can compound the difficulty of making projections.
A service-providing voluntary organisation may have a slightly easier task in forecasting income. People will pay for services if they feel that they are useful. As long as the services are of high quality and meet the needs of users, the organisation can reasonably assume that they will continue to pay for them.
The forecaster first studies current income and spending and asks if they can be sustained at present levels:
- If unusual events have occurred in the past year or two, are they likely to recur?
- Is it reasonable to expect an increase in revenue?
- What increase does the organisation expect as the result of an action taken in the past, such as last year's setting up of a development department?
- What increases in revenue might result if some new marketing scheme is added to the expense side of the budget?
Phasing the budget
When preparing an income and expenditure budget for a project, it is important to identify when in a twelve-month period the income and expenditure items are likely to arise. For example, costs such as insurance and rates are not incurred regularly throughout the period. Similarly, grants might be paid quarterly in advance or in arrears, and income from events will arise just before an event.
This phasing of the budget is important, because without it, useful comparisons between actual and budgeted income and expenditure will not be possible.
The forecaster should then work through future income forecasts for each type of income and expenditure:
- Voluntary income donations and membership
- Earned income and service delivery fees
- Investment income
Back to what is a budget?
Advice and support
- Funding and finance
- Coping with cuts
- Addressing needs
- Managing change
- Planning for the future
- Involving people
- Public Service Delivery
- Governance and leadership
- Compact Advocacy programme
- Campaigning and influencing policy
- Collaborative working
- ICT (information and communication technology)
- Climate change
- People, HR and employment