What is it?
A budget is a financial plan that sets out the income a charity expects to receive and the expenditure it plans to make over a defined period, usually a financial year.
It translates your strategy and activities into financial terms, giving a clear picture of what you can afford to do and helping you track whether you are on course as the year progresses.
Why does it matter?
A budget is one of the most important financial management tools a charity has. Without one, it is very difficult to know whether you can afford planned activities, to spot financial problems early, or to demonstrate financial control to trustees, funders, and auditors.
Budgets also support good governance: trustees have a legal duty to manage their charity's resources responsibly, and an accurate, regularly reviewed budget is a key part of meeting that duty.
Who needs to know?
Budget preparation usually sits with finance staff, but input should be gathered from across the organisation, since the people delivering activities often have the clearest sense of what things actually cost.
Trustees are ultimately responsible for approving the budget and should understand it well enough to ask informed questions, even if they are not finance specialists themselves.
Where do we start?
Start by listing all expected sources of income for the year, being realistic rather than optimistic, particularly for any income that is not yet confirmed.
Next, list all expected costs, splitting them between core running costs (such as staff salaries, rent, and insurance) and project or activity-specific costs.
- Use the previous year's actual figures as a starting point, adjusting for known changes
- Build in a degree of caution on income, especially anything unconfirmed
- Involve budget holders across the organisation so figures reflect real operational knowledge
- Get the budget formally approved by trustees before the new financial year begins
- Review actual income and expenditure against budget regularly throughout the year, not just at year end
Many small charities find a simple spreadsheet is sufficient, with income and expenditure broken down by month so variances can be spotted quickly.