2.3 Financial planning

Responsibility for major financial decisions is likely to rest with a senior member of staff of the organisation or institution hosting the resource centre. The resource centre advisory committee may be involved in helping to set spending priorities. Resource centre staff can manage expenditures for smaller items up to an agreed value.

Financial planning involves:

  • establishing the financial needs of the resource centre
  • identifying assured and potential sources of income, including income-generating possibilities
  • drawing up regular - usually annual - budgets
  • developing a plan for fundraising.

2.3.1 How to establish financial needs

Identifying the financial needs of the resource centre is the first step in financial planning. It means looking at the resource centre’s objectives and planned activities, and working out what it will cost to meet these objectives and to carry out the activities. This initial financial planning exercise is very similar to drawing up a detailed budget. However, it should include all the things you want to be able to do, in an ideal situation. It should cover a fairly long period, such as three years or five years.

A budget is usually a more defined tool which sets out in detail a realistic expectation of what it actually will be possible to do. It usually covers a shorter period, such as a year.

Both in the larger exercise of identifying the financial needs, and the more detailed annual budgeting, it is important to include all the expected costs of running a resource centre. You will need to find out prices or obtain estimates from suppliers. Costs include capital costs, recurrent costs and possible special project costs.

Capital costs are for items that are bought once (or infrequently) and then used for several years. They include the costs of setting up a resource centre, or of replacing essential equipment or materials, such as:

  • furniture
  • computer equipment
  • photocopier
  • video
  • duplicator
  • overhead projector
  • typewriters
  • heaters/air conditioners
  • bookshelves.

They may also include some initial start-up costs, such as the services of a consultant to plan the resource centre, or the purchase of an initial stock of materials.

It is sometimes useful to divide capital costs into large and small costs. Identifying large costs - for example, specific equipment such as a photocopier or computer - might be helpful in describing specific fundraising targets.

Recurrent costs are costs that need to be met regularly. They are sometimes called running costs or operating costs. They are usually estimated on an annual basis. Start by finding out the current cost. Then add a reasonable amount for inflation to cover these costs in later years. It is useful to know what the expected rate of inflation will be during the period you are budgeting for.

The largest recurrent costs are usually salaries and resource materials. A typical breakdown of recurrent costs might be:

  • salaries and benefits 60-70%
  • resource materials 20-30%
  • stationery/small items 5-7%
  • insurance 1%

Larger recurrent costs are likely to include:

  • staff costs (including salaries, increments, promotions, social welfare contributions, training and travel)
  • building rental
  • building maintenance
  • electricity
  • water rates
  • telephone, fax, email
  • auditors' and bank fees
  • new additions to the collection (books, posters, videos, slides)
  • annual subscriptions to periodicals
  • computer hardware upgrades
  • computer software upgrades including anti-virus protection.

Smaller recurrent costs may include:

  • producing health learning materials, information packs and so on
  • publicising the resource centre
  • stationery
  • postage
  • computer supplies (paper, disks, printer ribbon/toner
  • small library equipment
  • insurance
  • miscellaneous items

Special project costs are costs that are incurred to undertake a particular activity. These could include:

  • organising a workshop or a training activity based at the resource centre
  • developing a particular publication
  • making an exhibition or presentation about the work of the resource centre or about one of the topics that it covers.

Once all the possible financial needs are identified, you are ready to look at what sources of income are assured (will definitely provide income) or expected (are likely to provide income).

2.3.2 How to identify sources of income

Depending on where the resource centre is located, there may be funds from a variety of sources to cover at least some of the costs. For example, a small resource centre that is being set up in a training institute, or in a teaching hospital, is likely to receive some funds directly from the institution in which it is based. These may be ‘in kind’:

  • by paying the salary of the person working in the resource centre
  • by contributing the building space, maintenance costs and some of the costs of the main utilities, such as heat and light
  • by providing administrative or financial support and services.

The resource centre may also receive a direct financial contribution from a parent organisation - a sum of money to purchase essential equipment and materials to use for the general running of the resource centre.

A resource centre that is serving a group or a network of organisations or institutions might receive small, regular contributions or in-kind support from each of them. Local government, non-governmental organisations, religious organisations or professional associations may make regular contributions to the resource centre, because they value its work. You may be able to charge for some services, such as photocopying, or charge membership fees for users, or generate income from sales of publications.

Adding together all of these likely sources of funding and in-kind support will show you how much money you can expect to be available to undertake the activities that have been planned. It is very tempting to be over-optimistic about how much will be raised. It is a good idea, when you are doing your financial planning, to be pessimistic and expect the worst. Unless you have a firm agreement of the amounts that are going to be contributed, it is best not to include these amounts in your financial planning, other than to indicate that there is a possibility of receiving them.

With your optimistic list of financial needs, and your pessimistic list of possible income sources, you are ready to build a realistic budget for the next year, and to identify targets for fundraising.

2.3.3 How to draw up a budget

There are two types of budgets that you need to prepare:

  • a minimum budget which is your basic operating budget
  • a more optimistic budget which includes activities that you would like to do if the funds are raised.

The minimum budget should be based upon how much income you are certain of receiving, perhaps with a small degree of optimism that savings will be made through the year or that additional funds will come in. Generally, the minimum budget aims to balance the expenditure and income. This is sometimes called an income-led budget.

The minimum budget should list all the expected costs of running the resource centre over the next year. It is built up by taking the prices of each individual item, or estimates from suppliers. It should also include a suitable percentage to cover inflation.

If the resource centre has been running for some time, the annual budget can be based on the previous year’s budget, taking into account any new items or services and likely inflation.

Indicate any expected income for the resource centre. Subtracting the expected income from the expected activities should leave a zero balance, or only a very small deficit (loss). If this does not happen, then it means that it is not possible to do all the things included in the expenditure section, unless additional funds can be raised. This means that some expenditure may have to be delayed or cut.

The more optimistic budget is the type of budget that you will usually prepare when you are developing proposals for future work. This type of budget sets out things that you would like to do, if you had the resources. A more optimistic budget helps to identify fundraising targets, because it is almost certain to have a deficit.

Establishing fundraising targets, and identifying work that you would like to do, is the first step in fundraising (see Section 2.4).