Managing the Budget and Program Finances

Financial Management

• Preparing budgets

• Making all types of financial transactions

• Accounting for large sums of money

School Financing vs. Commercial And Corporate Programs

• School setting financing differs from Commercial and corporate settings:

– 1) Commercial and corporate fitness directors use aggressive marketing and/or fund raising efforts and are willing to perform them, while PE and Athletic Directors rely heavily on the general funding of their institutions

– 2) PE and Athletic directors in schools spend too many hours on fund-raising efforts that do not produce much income, while commercial fitness managers spend their energies on those campaigns capable of significantly increasing their income.

– 3) Commercial enterprises hire personnel educated and trained in marketing a product or service, whereas most school administrators expect their teachers, coaches, and sports administrators to raise the needed supplementary funds.

Other Crises in School Finances

• 1. Many school administrators do not realize the benefits derived from physical activities and sports and fail to adequate support them financially

• 2. A number of teachers and coaches of PE and athletics are not dedicated to the needs and interests of the students, whereas commercial fitness managers must be

• 3. Many athletics programs are competing at levels that they cannot afford

• 4. School officials have had trouble funding equitable programs for girls and women after Title IX was implemented without cutting back on existing boys and men’s sports

• 5. Many sports administrators are very poorly prepared to manage program finances

Budget

• A written estimate of anticipated income and expenditures

• A plan that serves as an instrument of control

Types of Budgets

• 3 Types of budgets:

– 1. Operational – usually has a one year duration, considered short-term: salaries, office supplies, travel, phone, and advertising

– 2. Equipment – May be included in the operational or capital outlay budgets depending upon the cost and anticipated life span. Usually costs more than $500 and lasts more than 5 years; exercise testing equipment, video cameras, typewriters

– 3. Capital outlay – enhances existing facilities through new construction or renovation; sometimes high cost equipment; broken down into major or minor capital outlay.

Systems of Budgeting

• The type of budgeting system depends on the size of the organization, the purpose, the number of employees, sources of funding, product or service rendered, and requirements of reporting

Line-item Budgeting

• Most common

• Budget is separated into budget categories and objects (line items); coded by numbers

• Figure 11.1: specified dollar amounts are planned for and allocated to each object rather than for each program or project

• Line-item budget does not specify a particular program

• Individual programs cannot be shown cost-effective

• Line-item budgeting is used because it is simple and requires less time

Incremental Budgeting

• Often incorporated into line-item budgeting

• If more funds are allocated during the year a budget item is increased “incrementally”, and conversely

• Does not favor any particular program which may merit and increased funding

Formula Funding

• Common in the educational sector

• Formula is applied that relates funding to production

– Schools base funding on attendance, or student credit units

– History courses vs. Science Courses: greater cost for science courses

Planning-Programming Budget System (PPBS)

• Designed for large operations and organizations

– Not practical for PE, fitness, or Athletics

• System is goal oriented and directs one’s attention to planning and programming rather than individual expenditures

• Items funded separately under each program; figure 11.2

• Time-consuming and complex, expensive to implement, discourages sharing between programs

Zero-Base Budgeting (ZBB)

• Goal-oriented

• Each year’s budget is planned and justified from a zero base, independent of past budgets

• Two major steps:

– 1) Decision Packages: Description and cost analysis of each program or activity in terms of how it will meet objectives. Alternatives presented

– 2) Ranking or prioritizing of the individual decision packages according to how well they meet the needs and objectives of each department

– Advantage: funding requests must relate program costs to goal achievement

– Disadvantage: unrealistic to go back to ground zero for ongoing programs each budget cycle

– Complex, time-consuming

Principles of Effective Budgeting

• The budget must be based on program objectives

– FB increased gate receipts

• The budget needs to be realistic

– Increase in income should result in increase in other expenses

• The budget should be flexible

– Program priorities may change, should be able to transfer funds from one item to another

• The budget should be prepared early

– Requires thorough analysis, concentrated thought, involvement of several people; not just incremental increases

• The budget needs to be easily understood

– Change class scheduling

Budget Dangers

• Should be a valuable tool for planning and control

• Program goals may become less important than budget goals

– Staying in the budget may not achieve the program goals

· Overbudgeting

– Too much detail, too little flexibility

– over control

• Budgeting by precedent

– creates inefficiency and problems in achieving goals

– Automatic increases or decreases without looking at performance and goals

• Inflexibility may be the greatest hurdle for conscientious directors to overcome

– Income may increase or fall short of goals

Preparing and Presenting the Budget

• Budget Preparation: 5 steps

– 1. Reviewing Organizational Goals

• Reexamine the purposes for existing; adequate funding vs. achieving goals

– 2. Analyzing Present and Alternative Programs

• Program review relative to overall objectives

• Determine cost-effectiveness

• Alternative ways to achieve goals at lower cost

– 3. Deciding upon Program Status for the New budget Request

• Which programs to continue or terminate

• Adding new programs

– 4. Estimating costs

• Salaries, supplies, equipment, travel, insurance, etc.

– 5. Writing the budget request

Budget Presentation

• Prepare budget without error

• Provide copies to those in authority in advance of formal review

• Be thoroughly prepared and knowledgeable about every aspect of the budget

• Be confident and decisive

• Use well-organized, simple, and logical format for the presentation

• May include some supporters of the budget who are prepared to speak on certain aspects

• Maintain a mature and composed presence: keep cool

Budget in Action

• Implementation of the budget continues for the entire budget cycle

• It takes effort to be good stewards of the funds

Accounting systems

• Maintaining control is essential

• Need a good accounting system

• Tracks income and expenses

• Several Methods:

– Cash Accounting System

– Accrual Accounting System

– Cost Accounting System

Cash Accounting System

• Track income as cash is received and expenses paid

• Documents transactions that occur during a set period of time: fiscal year

• Simplest method

Accrual Accounting

• Tracks transactions on the basis of the period to which the transaction applies, not when the transaction takes place.

• Equipment ordered against the resources budgeted for the year, and the transaction is reflected as a commitment of funds regardless of when the equipment is received and payment made.

Cost Accounting System

• Attempts to identify the components that make up the cost of delivering a product or service.

• Typically, labor, materials, overhead are the components

• Useful in cost analysis studies

Audits

• Evaluation that ensures that a financial operation is conducted according to the regulations, policies, and good business practices.

• Not done to keep people honest; but can determine misuse

• Intent is to improve performance

• Routine procedures

• Internal or external audits

Program Funding

• When tax monies do not fund everything properly, funds have to be raised to accomplish the desired plan

• Equipment, supplies, travel, facilities, official’s salaries, scholarships, and conference fees.

• Health and wellness programs for profit or non-profit organizations are expected to be self-supporting.

• Commercial and private agencies are profit oriented and use aggressive marketing efforts

• Donations for programs that include the needy, disabled, etc.

• Corporate fitness programs may be partially supported through use fees.

Memberships and Fees

• Public and Private fitness enterprises

• Booster donations include membership and usage privileges

• Advance fee structure superior to the per use fee

– Only a few percent of the members of a fitness center continue using beyond one or two months.

• Athletics events drop off attendance if the teams are not winning

• Ancillary fees for services and products

Fund-raising Events and Activities

• Weekend competitions, bake sales, raffles, door-to-door sales, camps, and clinics.

• Walk-a-thons, jog-a-thons, fun runs, tennis and racquetball tournaments with sponsorship

• Table 11.1

• It takes money to make money

• Signs for sponsorship

Concessions

• Interest in T-shirts, caps, other items with the logo of the team

• Fair trade pricing vs. demand pricing

• Administered by the organization or contacted to professional enterprises

• Most profit-making enterprises do their own selling; Athletic departments

• Need a qualified staff to properly administer the concessions

• May contract with a professional enterprise for a fixed percentage of gross sales

• Administering your own has some advantages:

– Greater profit if system is reliable

– Full control of program gives a more positive image to patrons

Contributions and Endowments

• Many individuals are interested in the program

• If involved in the program, or recognized by the organization, they may be motivated to part with some money.

• Endowments usually come with restrictions

Grants

• Significant source of funding for schools and nonprofit organizations

• Director’s grant-writing ability and experience is a plus

• Much time spent searching for professional, government, or foundation grants

Bond Issues

• Municipalities and educational institutions use bonds

• Bond issue subject to a legislative act or public vote.

• Limited debt by state law

Purchasing Supplies and Equipment

• Vary from organization to organization

• Procedures for purchasing

• General principles:

– Taking Inventory

– Purchasing Considerations

– Competitive bidding

• Writing specifications

• Buying from local merchants

• Accepting gifts

Summary of Purchasing Guidelines