Lecture 2. Preparing a budget
The purpose of a budget is to work out in advance what the cost of a project should be.

A budget also provides the basis from which a cashflow projection can be prepared. The difference between a budget and a cashflow is that a budget usually shows a set of totals whereas a cashflow breaks down the total along a time frame of when costs will be incurred or income will be achieved.

Typically cultural professionals need to prepare a budget for one or more of the following reasons:

  • For your manager

  • For a funder

  • To bid for funding

  • To transfer responsibility for expenditure to you from a manager

So in all cases you are preparing a budget before starting a project. Ideally you would prepare the budget alongside confirming the project deliverables after all it would be foolish to make a commitment to deliver activities that you don’t know the cost of!

At its most basic a budget is a list of all the activities that are part of a project and a best guess at what each will cost in hard cash. An excel workbook is a sensible way to prepare this list of costs not least because you can easily include various calculations and summaries. You will also need a written document which summarises all the key notes that go with the excel sheet. For example you may need specific insurance for the project in which case the excel sheet can contain the estimated cost and the word document can contain the details of where the quote was obtained from and what liabilities are covered by the insurance you intend to take out.

You may find that there are ways in which you can borrow resources at no cash cost e.g. a partner organisation might lend you a venue without charging you for it. If this is likely to be the case you need to agree this in writing with the partner and you need to state it in a written document which goes with the excel sheet.

1. Working out what goes into a budget

Typically creative professionals are pretty good at working out what the costs of the creative activities. The thing that leads to sleepless nights is worries about whether they’ve got it right when it comes to the costs of marketing, promotion and other activities which are focussed on attracting audiences. If any area is likely to get forgotten in a project budget it is likely to be the various ‘hidden’ costs associated with things like electricity, heating, lighting, insurance, governance etc.

To help you with this you will find in Template 1 - budget and cashflow that we’ve provided a list of both income and cost elements so that you can work out which of them are appropriate to your project.

You will find in Template 2 - assets and income streams that we’ve provided a set of brief explanations of the various types of income so that if you are considering ways in which you can diversify your project and organisational income you have a bit more to go on!

Another way of thinking about this is to draw yourself a copy of the diagram below and use this to work out what happens along the progress of the project from ‘creative driven’ to ‘audience focussed’ and use the third point of the triangle to double check that you’ve included any ‘hidden’ or indirect costs that the organisation will incur and any income accruing from related activities such as a shop or café.

In the additional resources section you will find links to various papers which discuss income diversification in particular.

2. Optimistic vs. cautious in income planning

If you plan for the worst case then success becomes a great problem to have.

You may or may not be able to fund 100% of a project with a grant. The trend globally is to ask arts organisations to find an increasing percentage of their income from non-grant sources. So whilst this course is focussed on budgeting skills not income generation skills it is worth joining the dots a little.

In planning earned income for a project the first question to ask is ‘what assets do we have and how can we monetise these?’ See Template 2 - assets and income streams for a list of possible assets to consider.

The second question to ask is what is the maximum capacity of an asset – how many seats in a theatre? How many covers in a café? How much does the shop usually sell in a month?

Once you have answered these questions you can start to set some goals for the earned income for your project. In an ideal world you will run two sets of earned income figures – an optimistic set that is your aggressive set of goals that you’ll agree with the marketing, sales and sponsorship teams. However your cautious set of goals that covers the minimum required to meet the funding gap between the grant allocated and the cost of the project is what you will set as the project target when talking to funders and other externals.

To help you set realistic goals you need to have an idea of what the norms or averages are in your country, for your size of organisation and in your sector. Whilst we don’t have local data to provide as a benchmark we can provide a robust set of comparison data from UK organisations. InTemplate 3 - benchmark data you’ll see that we have listed five sizes of organisation in terms of their total revenue. These are in the columns. In the rows you will see that we have indicated what the average percentage of total income arising from this income type is for each of these five sizes of organisation. For example in organisations with a turnover of less than £200,000 the average percentage of income that an organisation achieves from private donations is 2.1% whereas in an organisation with a turnover of more than £10m the average percentage of income accruing from the café and catering activities is 13.7%. This data is sourced from the Culture Benchmark which holds profit and loss financial information on some 1500 arts non-profits.

So now you can:

  • Decide who the budget is for and therefore the level of detail that is appropriate

  • Determine whether this budget is enabling others to delegate to you or enabling you to delegate to others

  • Consider a long list of possible types of income that may be appropriate to your project

  • Review the assets you have available and consider how these might be used to deliver earned income

  • See the difference in the average levels of different types of income in UK organisations of comparable size

  • Set earned income goals for your project


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