Financial planning is the process whereby a club develops a plan for the allocation and management of finances, capital and investment to meet club strategic and business plans/ goals. Financial plans provide clubs with an understanding of the ability to deliver activities within budgeting constraints, in addition to forecasting and planning for future requirements.

a) Budgets

Budgeting is the process of applying financial estimates to the activities of the organisation as contained in the Business Plan.

A budget performs the following key roles:

  • Aids the planning process by quantifying income and expenditure objectives/benchmarks
  • Identifies areas where inadequate resources exist
  • Provides a mechanism for gauging performance against the club’s Business Plan
  • Controls expenditure and identifies shortfalls in income through the monitoring of actual results against the budget
  • Highlights issues and unexpected deviations when they occur, so that prompt action can be taken if required

Some budgeting tips:

  • Allow time for its preparation to ensure that it is completed and approved by the start of the financial year. There will generally be several versions prior to the final version
  • Involve all people whose responsibility it will be to carry out the budgeted activities and/or report on the results as compared to the budget
  • While previous year’s results can be a useful guide, base your current budget on a detailed analysis of how best to allocate scarce resources to achieve your objectives, given changing priorities

Committees should approve the budget within a month after the end of its financial year. Once the budget has been set, it should be given to all Committee members and relevant Club members to ensure that expenditure levels are known for each program. Once the budget is distributed, constantly refer to it to ensure all expenditure is budgeted for and to monitor and control your costs throughout the period.

In certain circumstances, the budget may need to be amended throughout the year if proposed expenditure is outside of the original budgeted figures. In order for the budget to reflect the actual situation, it is recommended that any changes are approved at Committee meetings and that it does not negatively impact the overall projected result.

Also consider carrying out a half-early review of the budget to update projections for the second half of the financial year.
This is particularly relevant if there have been material variances, both favourable and unfavourable.

b) Cash forecasting

Usually, the budget will have been prepared on a cash flow basis.

The overall objective of cash flow monitoring is to anticipate the months in which cash flow problems are likely to occur and to plan for these accordingly. On the other hand, the existence of cash surpluses creates an opportunity for the organisation to generate additional income by investing for nominated periods of time.

c) Financing and Investing Activities

From time to time the Club Director of Finance/Treasurer may be called on to provide advice or make recommendations to the Club Management/Executive Committee about financing the purchase of a major asset (e.g. new clubhouse facility) or how to invest surplus funds.

As financial institutions offer such a wide range of loan and investment products and services the Management/ Executive committee should seek independent financial advice about such matters before making firm recommendations about how the Club should proceed. Decisions about financing major asset purchases or investing large amounts of money do not occur very often but have significant long-term implications for the financial performance of clubs.

Financing and investing activities are regulated to some extent in incorporated associations by the Associations Incorporation Act.

Some additional points for investment activities:

  • Dealing with reputable financial institutions when making investment decisions minimises the risks associated with investing funds.
  • Borrowing funds exposes clubs to a degree of risk. If a club defaults on its loan repayments, the financier may move to appoint an administrator to conduct the affairs of the club (e.g. the management committee loses control) or may have the club wound up and its assets sold to cover any outstanding debt. There are several basic principles involved when borrowing funds to finance the purchase of fixed assets:
    - Match the term of the loan to the useful life of the asset (e.g. motor vehicle four to five years, new building 10 to 20 years).
    - Funds provided by the club should equal or exceed the borrowed funds.
    - The club should ensure it has the capacity to service the debt.
  • Lenders are concerned with the amount of collateral offered in relation to a loan, the ability of the club to repay the loan out of its earnings, the current market value of its assets, and the ease with which the lender could sell the assets. When approaching a financial institution with a proposal to borrow funds, clubs will need to have the following information available:
    - The purpose of the loan
    - Last three years financial statements (e.g. statements of income and expenditure and balance sheets)
    - A cash flow budget for the period of the loan (monthly for first year)
    - Details of debtors and creditors

References

Our Community – Damn Good Advice Guide
https://www.ourcommunity.com.au/files/DamnGoodAdvice.pdf

Australian Tax Office
https://www.ato.gov.au/Non-profit/

Business – Create a Budget
https://business.gov.au/finance/accounting/create-a-budget

Last modified: 19 February 2024