4 Interpreting budgets
Now you will practise interpreting a budget using an example of a community association. First, you will look at income: on the budget this appears as a list of all the money the organisation has coming in or has in the bank as reserves or surplus. If the organisation is not intending to spend the reserves, they might not be mentioned, although the budget would usually refer to the expected interest to be earned for that year.
Activity 4 A community centre’s predicted income
Read the following case study and then answer the questions below.
Case study: Oldtown Community Association
Oldtown Community Association is a registered charity that was first set up in 1960. It aims to provide facilities for social welfare, recreation and leisure, to maintain and manage a community centre and to allow people to hire the hall in order to promote community activities. It is run by a general committee, which includes a representative from each of the affiliated groups and an executive committee of volunteers.
Membership is £2 per person, with affiliated groups paying £10 per year. Their fundraising activities have been fairly successful over the years and the organisation has funding from a Big Lottery grant, which is being used to modernise the centre. The Association has applied for a further grant to upgrade the car park but is still awaiting the decision.
Table 2 is an example of what the predicted income might be for the Association in the next financial year.
| Unrestricted funds | Restricted funds | |
|---|---|---|
| Membership | £2,000 | |
| Donations | £300 | |
| Hire of the hall | £20,000 | |
| Fundraising events | £4,000 | |
| Big Lottery grant | £30,000 | |
| Grant applications (unconfirmed) | £5,000 | |
| Reserves | £10,000 |
- What is the Association’s total predicted income?
- What is the most important source of income?
- Can you foresee any problems with these different sources?
Comment
- The total income is £56,300. The grant application is unconfirmed so cannot be included. If the Association’s application is successful, the money is earmarked for a specific project, which could then go ahead.
- The biggest source of income is the Big Lottery grant. However, this is for a specific purpose and is restricted. In the long term, the hire of the hall raises the most money. The organisation could consider raising its membership fees in the long term, but given the nature of the organisation this may not be successful.
- In common with many voluntary organisations, funding is uncertain. Membership might fall or organisations might not want to hire the hall. It is sensible therefore to keep some money in reserves to deal with unforeseen changes. However, in this example, the modernisation of the hall should provide greater opportunities for more events.