Budgeting in Cooperatives

BUDGETING IN CO OPERATIVES A budget is a statement about the allocation of money (income and expenditure) according to a set of priorities or a plan over a period of time. The advantages of having a budget and budgeting system are as follows It ensures the plans and ultimately the objectives of the co-operative are complete It provides a delegacy to control expenditure and ensure corrective measures are in place if over-expenditure has occurred or is happening It assists in communicating financial nurture to all in the co-operative everyone will know how money coming in will be spent It assists with plan implementation It helps to measure performance of the co-operative It is excessively a motivational tool because it gives solicitude. If a co-operative does not budget the following disadvantages will occur in that respect will be no sense of direction Overspending will happen and financial control will breakdown Decisions will be made in an ad hoc or unplanned way The re will be unrealiable financial information. There are two main ways of budgeting (1) Incremental incremental budgeting works with last years figures.It means adjusting to some degree the budget to fit the current year. This is a very problematic way to budget. It assumes the objectives or priorities for the co-operative are the same every year. It might up to now repeat some of the problems of last years budget. (2) Zero Based zero-based budgeting is based on analyzing the costs afresh for the year. It allows the budget to be aligned to sunrise(prenominal) objectives for the coming period. All expenditures have to be justified and in line with the objectives of the co-operative.There are many things that should and should not be done when drawing up a budget. The Dos Be hard nosed and realistic Take last years budget expenditure and the actual results into account tax where there were variances Know what the fixed and variable costs of the co-operative are Develop budget h eadings that fit in with the operations of the co-operative as a whole lay in information thoroughly Decide to go for incremental or zero-based budgeting. The Donts Neglect to involve members and other stakeholders Leave too little time to complot the budget Make over-optimistic assumptions about income, in particular. The drawing up of a budget should take at least a full month of research, democratic input and drafting. It should come after the come along has had an opportunity to plan for the forthcoming year. How should a budget be drawn up? Step 1 invest the key plans and objectives/priorities for the co-operative. Step 2 Cost these objectives or priorities using last years budget and the actual results.Know what is coming in and out by breaking costs under different headings such as wages, rent, telephone, etc. Think through the fixed and variable costs such as imperishable staff costs and the cost of raw material. Ask important questions about the income and outgoin gs. Are there likely to be any changes? Step 3 ground in budget control parameters such as monthly or weekly tracking income and expenditure against the budget. The C E O should give reports to the get along on changes or variances and recommend corrective action.Step 4 A draft budget must be presented to the all worker-owners for input. It must then be tabled at the board and General Body for approval. Step 5 Once AGMs approval is given, the budget must be communicated to everyone in the co-operative and must be freely available. Step 6 Consistent and ongoing monitoring by the C E O and the finance subcommitteemust occur. Regular reports must be given to the board and where there are variances between income or expenditure and budgets, this must be reported to the board and corrective action put into place.