Budgeting in schools
A budget estimates the revenue and expenditure incurred by the school or kura over the financial year (from January to December).
It's about working out how much money your board expects to receive, what you need to spend it on, and then setting limits on how much can be spent in each area.
Setting the budget for your school is like setting your own personal budget, just on a larger scale.
Who is involved in budgeting?
While your board and principal have a shared responsibility to prepare the budget, many boards will set up a finance committee to do this on their behalf.
We recommend having a "terms of reference" document to set out the roles and responsibilities of the committee.
You can also seek advice from a finance professional (such as your accountant) to check your estimates before they're finalised.
Your board is responsible for approving the budget before the beginning of the financial year.
There are three stages to budgeting:
- Preparing the budget
- Approving the budget
- Monitoring the budget
How do you prepare the budget?
Your budget will include many components, but should include the following four specific areas.
Operating budget
How much money you receive, and how many expenses you'll need to pay.
Capital expenditure budget
For large purchase items (such as buildings or classroom furniture) that have more than one year of useful life.
Cash flow budget
All cash in and out of bank accounts.
Balance sheet budget
Is based on the previous three budgets and is used to predict the value of your assets, liabilities, and equity at the end of the year.
It's helpful to prepare for your budgeting by:
- Identifying specific goals or activities from your strategic plan that need to be budgeted for.
- Reviewing current-year expenditure against the budget to understand what has worked well and what requires attention in the new year.
- Determining any additional information needed to support sound board decision-making.
It’s important to treat each year independently and base your budget on your priorities, confirmed figures, and expected outcomes for the year ahead.
What should you consider when setting your operating budget?
Consider the following questions as you draft your operating budget.
Income
- What is your operations grant entitlement for next year?
- What activity fees and/or donations do you expect to collect?
- Are you planning an overseas student programme?
- What other fundraising have you planned?
It makes good financial sense to be conservative when estimating revenue, just in case things don't go as hoped.
Personnel (staff costs)
- What is your entitlement for teachers and management units next year?
- Do you plan to fund any teachers from operational funding or locally raised funds?
- What teacher aides are you planning to employ, and how will they be funded?
- What support staff are you planning to employ?
Department and classroom costs
- What department or classroom costs are you likely to have next year?
This includes photocopying, class resources, workbooks, equipment required to deliver the curriculum, trips, and asset requirements.
Infrastructure costs
- What property and ICT costs are you likely to incur next year?
- What fixed asset purchases do you need to make?
Other costs
What other expenses are you committed to next year?
- Administration costs?
- Depreciation costs?
- Cyclical maintenance provision?
- Operating lease costs?
- Finance lease interest costs?
What should you consider when setting your capital expenditure budget?
Fixed assets or capital purchases are not part of the operating budget and should be budgeted for separately.
Fixed assets need to be maintained in good working order, and planning for their replacement is essential.
You can do this by:
- Keeping your fixed asset register accurate and up to date.
- Identifying when assets need replacing (noting that replacement costs may exceed the original purchase price).
- Determining any new assets needed to achieve strategic goals.
- Budgeting for related costs such as consumables (for example, paper and ink for printers) and maintenance (such as photocopier servicing).
- Considering how roll projections may influence when assets need replacing (due to increased use).
- Preparing a forecast or asset replacement plan outlining when assets will need replacing and associated costs.
- Comparing your depreciation budget with the asset replacement plan and developing a savings plan to address any funding gaps.
- Building flexibility into both asset and savings plans to ensure funds are available for unexpected replacements.
- Considering setting aside funds into an account dedicated to asset replacements.
What should you consider when setting your cash-flow budget?
Your cash flow budget needs to represent all cash in and out of your bank accounts.
It should not include non-cash items such as teacher salaries or your cyclical maintenance provision.
Consider the following when setting your cash flow budget:
- Can you afford to run a deficit (loss) next year?
- What is your current level of cash reserves?
- What assets do you need to replace?
- Do you need to make any capital purchases?
- When are your cyclical maintenance and painting requirements due?
- Have you factored in your 5 Year Agreement (5YA) funding and 10 Year Property Plan (10YPP)?
- What are your staffing levels? Do you need to plan for any changes?
- What do you need to budget for to meet the goals of your strategic plan?
What should you consider when setting your balance sheet budget?
Your balance sheet budget needs to include the following three components.
- Operating budget
- Capital expenditure budget
- Cash flow budget
At the end of the financial year, these are used to predict the level of your assets, liabilities, and equity.
It's best if your balance sheet budget is prepared by a qualified finance professional.
How do you approve your budget?
Before your board approves the budget, consider the following:
- Does the budget represent the goals of your strategic plan?
- Are the figures realistic? Do they reflect your actual income and expenses?
- Have your long-term requirements, such as cyclical maintenance and asset replacement, been factored in?
- What changes have been made from the previous year?
Once the proposed budget has been reviewed and updated (if applicable), your board can formally approve the budget and record the decision in your board meeting minutes.
A copy of the approved budget and the related minutes should be provided to your auditor as part of your annual auditing process.
How do you monitor your budget?
Your board and school should regularly review how you are performing against the budgets.
The school (finance staff and the principal) will receive detailed monthly financial reports.
These reports typically show each transaction and which area of the budget they have been recorded against.
The school's role is to:
- Ensure the transactions have been processed accurately (or corrected if needed).
- Prepare a monthly financial report for your board.
Boards need regular updates about the financial performance and position of the school to make good decisions.
It's essential to identify when something is not tracking against the budget as planned so that corrective action can be taken.
It's recommended that your board's monthly finance report include the following:
- A comprehensive revenue and expense statement (or a summary) showing actual income and expenses against what was budgeted and how much budget remains.
- A statement of financial position, including any significant commitments for the next month.
- A commentary/exception report showing unusual or unexpected variances from what was budgeted.
- Current banking staffing showing an under or overused position (this is a tool schools use to manage their annual staffing entitlement).
What happens when things aren't tracking to your budget?
Despite your best efforts, things don't always go according to plan!
These are some steps to help you get back on track:
- Seek advice and assistance from the experts, such as your school's financial service provider, business manager, or Ministry of Education Financial Advisor.
- Review your current income and expenses to identify what has caused the issue. For example, is it due to a declining roll, or have you had to pay for significant repairs and maintenance?
- Review the budget assumptions – were the assumptions realistic?
- Reforecast your budget – this shows where the school is likely to use its funds and considers any changes since the budget was approved.
- Think about any changes you could make to increase income or reduce costs.
- Identify any expenses that could be delayed, such as waiting a bit longer to replace assets.
- Review your cash flow – can you afford to pay invoices, or do you need to hold off until you receive your next operations grant?
What happens when you must pay for something you haven't budgeted for?
All payments outside the principal's delegation, or purchases not budgeted for, need to be presented to your board for approval.
Budget preparation cannot account for everything that happens in a year.
Circumstances can change, and sometimes funding needs to be reallocated.
When this happens, a reforecast (or revised budget) should be prepared.
A reforecast shows where the school is likely to use its funds during the year and considers any changes that the school has become aware of since the budget was approved.
Forecasting allows for early intervention and informed decision-making.
A reforecast or revised budget must be submitted to your board for review and approval, and the decision recorded in your board meeting minutes.
Questions your board could ask
- Who is involved in preparing our budget?
- What should we consider when setting our budget?
- How do we approve our budget?
- What is our process for monitoring our budget?
- Can we afford to run a deficit budget?
- When was our budget last reviewed?
- Have we considered our strategic plan in our budget?
- What roll number is our budget based on?
- What risks are associated with the budget?
Templates, resources, and references
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