|How to Properly Budget for the Next Academic Year|
How to Properly Budget for the Next Academic Year
There are two basic methods utilized when constructing a budget:
- The chapter sets income and then allocates funds toward different expense categories in the budget.
- The chapter must realize what expenses and costs it must meet to properly operate the chapter. The best tool to determine predictions of expenses is by using historical data. Also, chapter goals must be considered when predicting costs and expenses.
This manual provides information on types of income and expenses and how a Treasurer can use the information to build an effective budget.
Step #1: Determine All Chapter Expenses -- At this point all chapter budget accounts are determined. Use historical financial data as a guide and tool for setting accurate predictions of costs. Be sure to adjust all data for cost of living fluctuations and chapter programming for new goals.
Rent or Mortgage Payment - The chapter's primary expense is the rent or mortgage payment to the landlord, or local bank. This figure is generally fixed and should always be paid on time.
Utilities - Utilities include telephone, electrical, water, waste removal and other items that contribute to the operation of the chapter house. It is a good idea to study past utility charges and bills when predicting this portion of the budget.
Salaries - Simply multiply the number of hours worked by the rate of pay to determine salary expense. This figure is generally consistent with previous periods. Be sure to include the federal tax payment.
Repairs and Maintenance - A chapter house needs to be maintained on a regular basis. Cleaning supplies and various tools should be kept in supply. Also set aside money for emergencies such as broken windows and doors. Historical costs and chapter goals determine this cost.
Chapter House Costs and Expenses - Chapter costs and expenses must be determined as the first step in constructing a budget.
Rush - The rush budget is determined by chapter goals. Rush is an investment and the chapter must decide how effective funds are in the recruitment of new members. Also, remember that more members in the chapter result in an increase in revenue for the chapter.
Office and Administrative Costs - A fund generally set-aside for the administration of the chapter. Often office and administrative costs can be divided into individual officer or committee budgets. Historical information, coupled with chapter goals can generate a prediction of this figure. The size of this budget can often times vary according to the size of the chapter.
Social - The amount allocated to social events should be determined by the events planned for the semester.
The social chairman should submit a proposed social committee budget that must be adjusted to match the goals and financial strength of the chapter before becoming a permanent part of the chapter budget. Risk management needs to be a major part of the budget allocation.
Initiation - The chapter should allocate money toward pre-initiation and the initiation of new members. The funds should be used to update and purchase ritual equipment and items such as candles, flags, pictures, and robes.
Alumni Relations - Alumni are the foundation of all chapters. Funds should be budgeted to produce alumni mailings and to program alumni events such as homecoming. Chapter goals weigh heavily in the calculation of this figure.
Parents - Each chapter should allocate funds toward communications and relations with parents. Mailing and other parents' events and programming can be developed using the parents' committee budget.
Home Improvements - Depending on the amount of money remaining, set attainable goals for chapter projects and large purchases. This fund may accumulate for many years before being allocated to a specific project. Ideas include new carpet, new furniture, or any other item for which the chapter has a need.
Scholarships and Scholarship Programming - Funds allocated toward rewards for scholarship achievement can help improve a scholarship program. This budget can be used to provide funding for Regional Conferences, National Conventions, Chapter Leadership Conferences, and campus programming.
Special Events - Money can be allocated for chapter retreats, Founder's Day, or any other chapter special events. Many times zero-based budgeting is used if extra funds are not available.
Miscellaneous - Many small expenses creep up during the semester. It is important to allow for these unexpected expenses. The amount depends on chapter historical data and the amount of detail in the chapter's budget. As a general rule, allow approximately 2% to 5% of the chapter's revenue to be expensed through miscellaneous.
Allowance for Bad Debt - All chapters must strive to collect all accounts receivables, but many payments are received late or never. Each chapter must allow a reasonable allowance for bad debt. Historical figures are helpful in calculating this amount. If none are reasonable, try to allow between 2% and 5% of the chapter's revenue for accounts receivable.
NOTE: The costs associated with the operation of the chapter are at the discretion of the chapter. Chapters may add to, or subtract from, the list above according to the level of sophistication of the chapter.
STEP #2: Forecast Income - There are many opportunities that chapters can tap as sources of income. The following will give a good idea of the money the chapter has to work with. Be sure to use conservative estimates as a control to avoid over budgeting.
The amount of rent is calculated using all costs associated with the operation of the chapter house. Simply multiply the number of renters by the amount of rent. Be sure to make allowances for any discounts given to brothers who pay in advance.
Chapter dues are charged to cover all chapter operations. Income from dues is calculated by multiplying the number of active brothers by the amount of payment.
Fundraising has proven to be an effective means for chapters to increase their usable budget. Be sure to estimate conservatively and realistically when calculating income from fundraising.
The interest from chapter's bank accounts can contribute to income if the chapter carries high balances. If the interest is not significant, do not include it in the forecast of income.
Include all significant forms of income that contribute to the operation of the chapter. For example, the chapter may make significant money from vending machines or other sources.
STEP #3: Adjust the Figures for Balancing
A comparison of total income projections and total expense projections provides an opportunity for the chapter to adjust income projections and projected funds allocation. At this point the chapter may need to shave-off or add to various budgets in order to balance the total chapter budget. The chapter must decide which accounts must be sacrificed or boosted to reach a balanced budget.
STEP #4: Approvals
Chapter - The proposed budget must be discussed and approved at the first meeting of the semester. Through the approval process, the chapter will raise concern and brothers will more likely be financially responsible. As discussed before, an informed chapter is a strong chapter.
Alumni Corporation – It is always a good idea to have the local Alumni Corporation to look at the budget and to ask for their advice and approval.
The following are the typical accounts that are found in the operations of a chapter. Not every chapter will have the need for all of the accounts, but they are listed here as a reference for those chapters who have a need.
The general fund is the master account for the fraternity. All money received will be recorded in the general journal (see appendix) and then deposited in the general fund bank account. As money is disbursed into other accounts, checks are drawn from the general fund to the intended account. The general journal is a record for all activity for this account and is a log for the checks drawn and their description of purpose. This acts as a back up to the checkbook.
The building fund can be a savings account. Budgeted allotments should be deposited to meet the goals of the chapter. These goals will vary from saving for a new house, improvements to an existing house, and extra money for emergencies. This fund should be under dual control of the Alumni Corporation and the undergraduate chapter. Methods of withdrawal should be provided for in both sets of By-Laws.
NEW MEMBER AND INITIATION FEES
This account should be a holding account for new member fees and initiation fees. The purpose is so that these fees and payments will never be inadvertently spent from another account. These monies can be lost if mixed in with the general fund -- they must be separated.
The kitchen is a function that requires many transactions and concerns. Treasurer should appoint the steward or kitchen manager. The kitchen needs to have a separate checking account into which the Treasurer makes weekly deposits for its operation. The steward/kitchen manager disburses these funds accordingly with dual control provided by the Treasurer, cook, or President.
Payroll is a unique situation for chapters that employ cooks or other services. Each state has different laws and requirements. Since filing of taxes has certain requirements, which include exact records, it is useful to have a separate account. Many banks employ a payroll service that prepares checks and withholds the proper deductions for your employees. This service often prepares the employer's tax returns as well. Any money set aside for payroll taxes should be left in the account so it is not used elsewhere. Always have this account in dual control with the Alumni Corporation because it is an ongoing process and the Alumni Corporation has less turnover than the undergraduate officers do. All records must be kept for seven years.
Many chapters may want to have a separate fundraising account. This money should not be mixed with other accounts. Many chapters have ongoing fundraising efforts like washing machines, soda machines, and candy machines. Also, when setting a budget, only budget the minimum expectation of what the chapter wants to raise -- not the goal.
The petty cash fund is a cash-on-hand account that requires strict control. It allows the Treasurer to disperse cash for non-recurring, small expenses. It is important for the Treasurer or Assistant to issue cash received receipt to this brother. He would then purchase the candles and return the change to the Treasurer along with a receipt. The change and the receipt would go back into the fund. All of the receipts and money in the fund should equal the amount of the fund (between $100 and $200).
The fund should be replenished when it is nearly depleted by writing a check to petty cash for the amount equal to the receipts. This check should be expensed to the miscellaneous budget account. The cash should be kept in a till in the safe. When money is issued, the brother responsible should sign an acknowledgement slip. The Audit Committee should review the receipts and reimbursements once a month to ensure accuracy.
NOTE: Pi Lambda Phi Fraternity strongly advises against the use of a chapter petty cash fund. It is recommended that all chapter funds be allocated in the form of a check. Check payment provides a "paper trail" and alleviates the possibility of theft.Date Last Modified: 1/11/2009 6:07:08 PM
Date Created: 1/6/2009 2:23:02 PM