2.3 Financial planning
Responsibility for major financial decisions is likely to rest
with a senior member of staff of the organisation or institution
hosting the resource centre. The resource centre advisory committee
may be involved in helping to set spending priorities. Resource
centre staff can manage expenditures for smaller items up to
an agreed value.
Financial planning involves:
- establishing the financial needs of the resource centre
- identifying assured and potential sources of income, including
income-generating possibilities
- drawing up regular - usually annual - budgets
- developing a plan for fundraising.
2.3.1 How to establish financial needs
Identifying the financial needs of the resource centre is the
first step in financial planning. It means looking at the resource
centre’s objectives and planned activities, and working
out what it will cost to meet these objectives and to carry
out the activities. This initial financial planning exercise
is very similar to drawing up a detailed budget. However, it
should include all the things you want to be able to do, in
an ideal situation. It should cover a fairly long period, such
as three years or five years.
A budget is usually a more defined tool which sets out in detail
a realistic expectation of what it actually will be possible
to do. It usually covers a shorter period, such as a year.
Both in the larger exercise of identifying the financial needs,
and the more detailed annual budgeting, it is important to include
all the expected costs of running a resource centre. You will
need to find out prices or obtain estimates from suppliers.
Costs include capital costs, recurrent costs and possible special
project costs.
Capital costs are for items that are bought once (or infrequently)
and then used for several years. They include the costs of setting
up a resource centre, or of replacing essential equipment or
materials, such as:
- furniture
- computer equipment
- photocopier
- video
- duplicator
- overhead projector
- typewriters
- heaters/air conditioners
- bookshelves.
They may also include some initial start-up costs, such as
the services of a consultant to plan the resource centre, or the
purchase of an initial stock of materials.
It is sometimes useful to divide capital costs into large and
small costs. Identifying large costs - for example, specific
equipment such as a photocopier or computer - might be helpful
in describing specific fundraising targets.
Recurrent costs are costs that need to be met regularly. They
are sometimes called running costs or operating costs. They
are usually estimated on an annual basis. Start by finding out
the current cost. Then add a reasonable amount for inflation
to cover these costs in later years. It is useful to know what
the expected rate of inflation will be during the period you
are budgeting for.
The largest recurrent costs are usually salaries and resource
materials. A typical breakdown of recurrent costs might be:
salaries and benefits 60-70%
resource materials 20-30%
stationery/small items 5-7%
insurance 1%
Larger recurrent costs are likely to include:
- staff costs (including salaries, increments, promotions,
social welfare contributions, training and travel)
- building rental
- building maintenance
- electricity
- water rates
- telephone, fax, email
- auditors' and bank fees
- new additions to the collection (books, posters, videos,
slides)
- annual subscriptions to periodicals
- computer hardware upgrades
- computer software upgrades including anti-virus protection.
Smaller recurrent costs may include:
- producing health learning materials, information packs and
so on
- publicising the resource centre
- stationery
- postage
- computer supplies (paper, disks, printer ribbon/toner
- small library equipment
- insurance
- miscellaneous items
Special project costs are costs that are incurred
to undertake a particular activity. These could include:
- organising a workshop or a training activity based at the
resource centre
- developing a particular publication
- making an exhibition or presentation about the work of the
resource centre or about one of the topics that it covers.
Once all the possible financial needs are identified, you
are ready to look at what sources of income are assured (will
definitely provide income) or expected (are likely to provide
income).
2.3.2 How to identify sources of income
Depending on where the resource centre is located, there may
be funds from a variety of sources to cover at least some of
the costs. For example, a small resource centre that is being
set up in a training institute, or in a teaching hospital, is
likely to receive some funds directly from the institution in
which it is based. These may be ‘in kind’:
- by paying the salary of the person working in the resource
centre
- by contributing the building space, maintenance costs and
some of the costs of the main utilities, such as heat and
light
- by providing administrative or financial support and services.
The resource centre may also receive a direct financial contribution
from a parent organisation - a sum of money to purchase essential
equipment and materials to use for the general running of the
resource centre.
A resource centre that is serving a group or a network of organisations
or institutions might receive small, regular contributions or
in-kind support from each of them. Local government, non-governmental
organisations, religious organisations or professional associations
may make regular contributions to the resource centre, because
they value its work. You may be able to charge for some services,
such as photocopying, or charge membership fees for users, or
generate income from sales of publications.
Adding together all of these likely sources of funding and
in-kind support will show you how much money you can expect
to be available to undertake the activities that have been planned.
It is very tempting to be over-optimistic about how much will
be raised. It is a good idea, when you are doing your financial
planning, to be pessimistic and expect the worst. Unless you
have a firm agreement of the amounts that are going to be contributed,
it is best not to include these amounts in your financial planning,
other than to indicate that there is a possibility of receiving
them.
With your optimistic list of financial needs, and your pessimistic
list of possible income sources, you are ready to build a realistic
budget for the next year, and to identify targets for fundraising.
2.3.3 How to draw up a budget
There are two types of budgets that you need to prepare:
- a minimum budget which is your basic operating budget
- a more optimistic budget which includes activities that
you would like to do if the funds are raised.
The minimum budget should be based upon how much income you
are certain of receiving, perhaps with a small degree of optimism
that savings will be made through the year or that additional
funds will come in. Generally, the minimum budget aims to balance
the expenditure and income. This is sometimes called an income-led
budget.
The minimum budget should list all the expected costs of running
the resource centre over the next year. It is built up by taking
the prices of each individual item, or estimates from suppliers.
It should also include a suitable percentage to cover inflation.
If the resource centre has been running for some time, the
annual budget can be based on the previous year’s budget,
taking into account any new items or services and likely inflation.
Indicate any expected income for the resource centre. Subtracting
the expected income from the expected activities should leave
a zero balance, or only a very small deficit (loss). If this
does not happen, then it means that it is not possible to do
all the things included in the expenditure section, unless additional
funds can be raised. This means that some expenditure may have
to be delayed or cut.
The more optimistic budget is the type of budget that you will
usually prepare when you are developing proposals for future
work. This type of budget sets out things that you would like
to do, if you had the resources. A more optimistic budget helps
to identify fundraising targets, because it is almost certain
to have a deficit.
Establishing fundraising targets, and identifying work that
you would like to do, is the first step in fundraising
(see Section 2.4).
next: 2.4 Fundraising and
income generation
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