Budget planning as a success factor: How your club benefits from good budget planning

When it comes to finances, most people who don't work in the financial sector or accounting get their hairs on end: For most people, it starts with working on their own tax return and ends with horrible memories of maths lessons at school. We are happy to take away your fear of the topic of finance by answering the key questions in detail:

• Why is it so important to draw up a budget?
• What are the advantages of good financial planning?
• What are variable and fixed costs?
• What are cost centres and why are they beneficial for the association?

In principle, finances have a considerable influence on all areas of the organisation, which is why various calculations are of enormous importance. We will be happy to give you some practical examples:

• Investments: Whether new offers can be created depends on large or small investments - a cost calculation is therefore very important.
  
• Predictability: Will the investment pay off in the long term or is it just a subsidised business?
• Current and future financial situation: Good decisions can only be made if the current and future financial situation has been analysed. Whether a premium increase is absolutely necessary or avoidable can be assessed more clearly with such information.
• Financial position of individual departments: It is helpful to review each individual department to highlight their profits, losses and efficiencies.

Incidentally, costing involves drawing up budgets and financial plans. This is internal accounting. External accounting is information that is published externally. This includes, for example, the tax office or cash auditors, who check incoming and outgoing invoices as well as proper bookkeeping. If you want to find out more about accounting, take a look at our blog article "What [FL1] to consider when auditing the cash register".

The budget defines the financial resources available to an organisation and is always dependent on the income generated. The aim is for income to be higher than or equal to expenditure. However, the budget is dependent on the availability of income. Here is an example: If a sports club assumes that around 100 more members will join in the next financial year, income will also increase. With an annual membership fee of 100 euros, this would mean 10,000 euros more income in this case. This additional budget can be spent on sports equipment or trainer allowances, for example. In business practice, such revenue plans are always drawn up in advance. This is because expenditure can also be planned on the basis of the expected income.

The target/actual comparison: why it makes sense for your club

Experts call this process a target/actual comparison. This also makes sense in associations in order to obtain an overview of the cost structure and expenditure. This allows the budget to be compared with the planned income and expenditure and the actual values. It is often possible to determine who has overspent the budget and where it was more expensive than planned. This makes it clear that the budget depends on assumptions about future developments. Of course, there are other factors that influence the budget in addition to membership figures. These can include

• Sponsors,
• Donations,
• Ticket sales,
• Leases,
• Subsidies or
• Grants.

Budget planning: A good tool for reacting to changes in revenue

Only by planning and defining the budget can the association be well managed. Let's assume that only 20 of the originally planned 100 new members join. Instead of the planned 10,000 euros, the association ends up with "only" 2,000 euros in revenue in this case. An existing budget plan gives you information about the originally planned purchases totalling 10,000 euros. This allows you to cancel planned costs and gives you a very good tool for adapting to changes.

Expenses should also be entered as accurately as possible in a good budget plan. And these are usually more varied in clubs than the income. If you pay volunteers in your organisation with a flat-rate volunteer allowance, this is an expense that can be planned well. This is because you know from the past how much the lump sum is and how many people receive it. When planning the budget, it is then only a question of whether the number of volunteers or the amount has changed. In principle, these costs can be allocated to a cost type. In business terms, these are "personnel costs". After such an evaluation, you can determine exactly how much budget is allocated to personnel. Note: A cost element refers to various costs that are summarised under one term. For example, the cost element "Office supplies" could stand for writing materials, envelopes and stamps. If the costs for this are very low in a year, the cost element can also fall under the category "Other". How you label the cost element is ultimately up to you.

Advantage: A quick overview of costs for the entire organisation

Grouping different costs allows you to get an overview of the entire cost situation of the organisation. If you regularly enter the actual costs in the budget planner, you will receive meaningful information about changes and deviations. This is like a top-down principle that provides a detailed overall overview without having to go through individual items.

In addition to cost types, a basic understanding of the nature of costs is also relevant. At this point, business economists speak of fixed and variable costs. In principle, fixed costs differ from variable costs as follows:

• Fixed costs are always independent of fluctuations in capacity utilisation, which you can hardly influence.
• Variable costs always depend on the intensity of use, which you can control much better.

Example of fixed costs: If you rent a hall for a sports group in your sports club, the city charges a fixed monthly fee of 100 euros, for example. With 20 members and a contribution of 10 euros, the income from the sports group is 200 euros. This leaves 100 euros of income that can be used for sports materials or trainer allowances, for example. If the sports group has fewer members at some point, the income will be lower while the costs remain the same. The costs therefore do not change due to other influencing factors. The problem: fixed costs that arise from fees, rental contracts or insurance are usually difficult for clubs to get rid of. The costs are not related to the intensity of use and are therefore a fixed factor in the overall budget planning.

Variable costs are always related to the intensity of use. We are also happy to give you some practical examples of this:

• The cost of the club software depends on the number of members that are entered into the software.
• The trainer who charges for the sports course by the hour and "cancels" sports lessons during the summer or winter break and therefore temporarily does not charge for working hours.
• The sports equipment, which is often also dependent on the number of members in the sports group.

The type of expected costs is a decisive factor in budget planning. Are they variable or fixed costs? And how will these costs develop as revenue increases and decreases? This is a very good way of calculating offers and creating an overview that shows how much money is needed. Based on this, you can also make a better decision about possible premium increases.

Clubs with more than one division can introduce a separate cost centre for each division. What exactly does this mean? If a club has a basketball and table tennis department, clear costs and income must be allocated to both departments. Sometimes this results in positive results for the club as a whole in the budget planning, but these are counteracted by red figures for individual departments. This can be intentional or unintentional. It is important that you know exactly what the income and expenditure of the individual departments look like.Of course, there are also costs that cannot be allocated to a specific department. For example, the club administration software or the expenses for the club party. Here you can consider splitting the costs proportionately or creating another cost centre for general or administrative expenses.

Budget planning is an essential tool for every club to ensure the best possible financial management. To summarise, the following contents are important for your club's financial planning:

• Budget planning consists of target figures and the effective utilisation of so-called actual figures.
• The creation of cost types is of central importance in order to better allocate costs.
• The type (variable or fixed costs) of costs is a decisive factor for successful budget planning.
• For a club with more than one division, separate cost centres are an advantage. This simple variant of cost centre accounting also provides beginners with an improved overview of club expenditure.

A detailed list of expected income and expenses, the separation between variable and fixed costs and the introduction of cost types are the basis for a healthy financial situation within your organisation.