Chapter 2.2: Budgeting

2.2.1 What is a budget?

A business dictionary describes an annual budget as an estimate of costs, revenues and resources over a specified period, reflecting a management's reading of future financial conditions. One of the most important administrative tools, a budget serves also as a:

1. plan of action for achieving quantified objectives
2. standard for measuring performance, and
3. device for coping with foreseeable adverse situations.

The Education Act 1989 requires that budgets are shown in Statements of Financial Performance (Income Statement) and Statements of Financial Position (Balance Sheet). 

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2.2.2 Steps to budgeting

Compile the draft budget

1. It is useful to prepare for your budgeting by:

• reviewing the School Charter and Strategic Plan to identify specific goals or activities that are required to be budgeted for
• create a Budget Committee – in a small school this might be one or two board members, in a larger school it might include senior managers
• clarifying roles (who does what)
• review expenditure against budget for the current year to see what has gone well and what needs to be addressed for the new year
• identify the information required to help make sound decisions.

This will give you a Budget Workplan.

2. Once you have all the information needed, load your data into a budget template. If you don’t have a budget template, ask your accounting service provider. 

Detailed budgeting

3. Income

• What is your operations grant entitlement next year (remember to take GST off the entitlement figure in your funding notice)?
• What activity fees and/or donations do you expect to collect next year?
• Are you planning an overseas student programme next year?
• What other fundraising do you plan for next year?

Note: It makes good financial sense to be conservative when estimating income, just in case things don’t go quite as well as hoped.

4. Personnel costs

• What is your entitlement for next year for teachers and for management units?
• Do you plan to fund any teachers from operational funding or locally raised funds?
• How will these teachers contribute to student outcomes?
• What teacher aides are you planning to employ next year and how will they contribute to student outcomes?
• What support staff are you planning to employ next year?
• How will they contribute to student outcomes?
• How do your planned support staff numbers compare to the benchmark for similar schools?

5. Department and/or classroom costs

• Based on your review of student outcomes, what department and classroom expenditure will you make next year?

6. Infrastructure costs

• Based on your review of school infrastructure, what property and ICT costs do you face next year?

7. Other costs

• What other expenditure must you make next year?
  - Administration costs
  - Depreciation costs

8. Future costs

• do you have costs coming up in future years that you will need to save for now? For example, will any of your support staff become entitled to long service leave, meaning that you have to fund a temporary replacement while they are on holiday?

9. Based on your review of school infrastructure, what fixed asset purchases do you need to make next year?

Review your draft budget

10. Now that you have the first version of your budget it is time to give it a reality check:

• are your assumptions realistic? For example, if your boiler breaks down every year, have you assumed there will be no boiler maintenance expenditure next year? does the school show a surplus?

If not:

• What changes can you make that will either increase income or cut costs?
• Can you afford to run a deficit next year?
• How can you make changes in future years to ensure you make a surplus and start building up reserves?
• Based on your experience last year and over the year to date, is your budget realistic?
• Will you have the funds necessary to make planned fixed asset purchases?
• Are there any areas where spending is not essential and does not directly contribute to student achievement?

11. Once you consider the budget is representative of the board’s strategic plan, prepare it for review by the board.

Seek board approval

12. Before the budget is finalised the full board must have an opportunity to check it.  If the board has been part of the planning process there will be no surprises now – the board may refine some of the detail and then formally approve the budget.

When the new year starts…

13. Once the school opens for the new year the budget should have one last check.  Primarily you need to make sure that your assumptions about roll numbers have been realised.  If your roll expectations differ from the reality your funding will be altered and you will need to re-examine your expenditure plans.

14. When the board approves the school budget it should record this decision in its minutes.

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2.2.3 Reviewing the budget during the year

No matter how careful the preparation of the budget, it cannot account for everything that will happen in the year ahead. Budget holders should have the flexibility to re-assess how they will spend their allocation as needs change.  The total amounts required by budget holders may also change. A review during the year may reveal such significant changes that a new forecast may need to be developed.  The process for approving these forecast changes should be documented and approved by the board.

It is recommended that boards conduct at least one formal review of their budgets during the year. This review is likely to follow the 1 July roll return.

Once the revised forecast has been approved, it will be used by the school for its own management.

Note: the board’s annual report must only show the original operating budget figures.  Decisions about forecast changes during the year will provide information for the Analysis of Variance about why actual income or expenditure was different from the original budget.

The cash flow budget should be reviewed quarterly and the cash flow forecast for the rest of the year updated.  Boards of trustees are encouraged to maintain a rolling forecast of their year-end positions, based on the actual year to date and budget or forecast figures for the remainder of the year.  This will ensure that the board knows that it has sufficient funds to the end of the year.