5 Balancing the budget

Organisations need to decide whether their budget should balance or not. In some cases, the organisation might want to project an imbalance of revenue over expenses (a surplus), perhaps because of plans for bigger expenditure the following financial year or just as a safety net.

A deficit budget might also be acceptable: for example, if there is an urgent need to spend on a big project or to invest in new staff or service improvement that will require the use of some funds from reserves. Trustees and staff will obviously need to look at the different implications. If they are not happy with expenditure exceeding income then the organisation will need to rethink the plans. This might involve postponing some activities.

However, the focus should not just be on whether the figures balance, but also on how well the organisation’s objectives and wider resources can be best used to help the maximum number of beneficiaries.

Occasionally, things go wrong with organisations and for many reasons: poor financial management is often a root cause. With some high-profile cases, such as the collapse of Kids Company in 2015, have come increased calls for more regulation and checking on what voluntary organisations are doing.

Hind (2015) described the collapse as a ‘wake up call for the whole sector’. He also highlighted that other, earlier, high-profile failures such as Refugee and Migrant Justice were caused by organisations being too dependent on one source of income, particularly government contracts.

Although the reasons for organisations failing are likely to be complex and intertwined, better financial management, together with maintaining stakeholder support, is important.