Accounting and Budgeting

1
Chapter Five

• Accounting and Budgeting

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Fiscal Management

• Fiscal management is the most critical element of
  event management
• An event presents a relatively short period of
  time to capture revenue
• The majority of the income generated is realized
  during the event period
• The financial risks and opportunities presented
  by the event must be fully discussed and
  incorporated into the strategic plan

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Fiscal Management

• Fiscal management is about the recognition of the
  scarcity of resources and the enactment of
  strategies to prioritize needs and make best use
  of the resources available
• The emphasis on profit making is dependent upon
  the goals of the event

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Accounting Principles

• Accounting practices are based on policies and
  procedures that support the mission, goals, and
  objectives of an organization
• Generally Accepted Accounting Principles (GAAP),
  as developed by the Financial Accounting
  Standards Board, provide organizations with a set
  of guidelines and conditions that will help to
  ensure that the methods used to record
  transactions and prepare reports support the
  credibility of your organization

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Accounting Principles

• Any individual involved with the expenditure of
  funds or the collection of revenue must be fully
  aware of the importance of following the
  procedures necessary for the successful financial
  management of the event
• The principle of public trust requires that
  public agencies act in such a way that the funds
  entrusted to them by residents, sponsors, and
  others be managed in an honest, transparent, and
  professional manner

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Accounting Defined

• Accounting is defined as the process of
  recording, classifying, and summarizing financial
  transactions
• The accounting system used by event organizers
  will depend upon the existing expertise of the
  organizing committee, the time available to
  devote to bookkeeping, and the complexity of the
  event business

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Accounting Functions

• 1. Tracking daily sales transactions
• 2. Purchasing of goods and services
• 3. Periodic posting and reporting of debits and
  credits
• 4. Issuing and administration of debt
• 5. Fiscal evaluation of the risk management
  program
• 6. Budget preparation and administration
• 7. Preparation of an annual financial report

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The Accounting Process

• Identify the basic transactions of the business
• Set up accounts
• Record transactions
• Summarize transactions
• Prepare reports
• Analyze the reports

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Using Fiscal Reports

• Accurate financial information allows for the
  analysis of the current situation, and the
  opportunity to forecast potential future success
• Accurate financial information acts as a control
  factor in the management process and identifies
  potential for innovation and growth

10
Budgeting

• A budget is a multiuse document that helps the
  organization to establish and adhere to spending
  limits that reflect the mission, goals and
  objectives of the event
• A budget is a planning tool
• A budget is a daily management tool
• A budget is a communication tool
• A budget is a control tool

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The Budget Cycle

• The budget cycle is linked to the establishment
  of a fiscal year
• A fiscal year is a twelve-month period used to
  manage the financial resources of an organization
• The fiscal calendar need not follow the
  traditional calendar. It can start on the month
  that is most convenient for the organization or
  that conforms to the fiscal year of the larger
  organizational structure

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Budget Terms

• An appropriation is the amount of money approved
  for spending and may be less than or exceed the
  amount of the original request
• A line item budget specifically identifies
  personnel needs, materials and services that will
  be purchased to support the event
• These line items are organized into cost centers
  which typically represent major areas of activity
  and expenditure for the event

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Budget Terms

• The line item method assigns a number or code to
  each cost center and line within the budget
• This creates an accounting system that utilizes
  these numbers in the budget planning, accounting,
  purchasing, inventory control, and reporting
  systems for the event
• The retention of accurate budgetary information
  contributes to the proper planning and the
  evaluation of the event

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Expenditure Categories

• Administration
• Planning
• Event Documentation/Evaluation
• General Materials and Supplies
• Site Management
• Utilities
• Transportation
• Marketing/Advertising
• Sponsorship

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Expenditure Categories

• Concessions
• Admissions
• Merchandise
• Entertainment
• Sanitation
• Staff/Volunteers
• Contractual Services

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Income Categories

• Ticket Sales
• Vendor Fees
• Merchandise Sales
• Sponsorships Advertising
• Fundraising
• Parking
• Grants
• Loans

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Fixed and Variable Costs

• Fixed costs are those expenses that will be
  incurred regardless of the impact (attendance
  numbers) of the event
• Fixed costs are also referred to as sunk costs as
  they are committed to the operation of the event
• Variable costs will fluctuate depending on the
  volume of business experienced. Any expenses that
  rise or fall with the number of visitors or
  attendees can be considered variable costs

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Managing Costs

• It should be a financial objective to try to
  reduce fixed costs as these may have a very
  negative effect on an event if anticipated
  revenues are not met
• By reducing fixed costs or by increasing ticket
  sales, the percentage of each ticket dedicated to
  fixed costs can be reduced resulting in greater
  potential for profit

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Managing Costs

• Variable costs, having a direct relationship to
  sales, may increase with additional economic
  activity, and have a more predictable
  relationship to profit margins
• The break-even point is the number of sales
  needed to produce sufficient revenue to cover all
  fixed costs and the variable costs of the event
• This is the point when the production of the
  event is covered by revenue and you can begin to
  realize a profit from any additional sales

20
Purchasing

• Purchasing is the process of procuring materials,
  supplies, and services that have been included in
  the detailed budgeting plan and are necessary for
  the planning and staging of your event
• Purchasing must be carefully regulated to ensure
  the best use of financial resources

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Purchasing Policies

• Policies must be developed and enforced to
  monitor the expenditure of resources. These
  include
• Regulations controlling the timing of purchases
• Ethical guidelines for making purchases
• Vendor rules
• Need for comparative pricing or a bidding
  procedure
• Requests for qualifications (RFQ)
• Requests for proposals (RFP)

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Purchasing Policies

• Quality-control specifications
• Bulk or cooperative purchases
• Emergency purchasing procedures
• Inventory controls
• Property disposal
• Petty cash use
• Rules that may be necessary for the
  administration of funds
• A purchasing manual provides details on these and
  other elements of the financial management of the
  organization

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Purchase Order

• A purchase order is a written contract and is
  subject to federal and state contract law
• Purchase orders include
• -Information about the purchasing organization
• -Identification of the vendor
• -Descriptions/quantities of the items to be
  purchased
• -Cost center and line item of the budget to be
  charged for the purchase
• -A unique number, the PO number

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Blanket Purchase Orders

• Issued to vendors that have repeat business with
  an organization
• A blanket purchase order may remain open for a
  predetermined amount of time allowing for easier
  transactions and reduced paperwork and a more
  predictable purchasing process

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Encumbrance

• A signed purchase order may hold funds beyond the
  end of a fiscal year as an encumbrance, so that
  items may be purchased at a later date
• Encumbrances allow organizations to retain
  appropriated funds for future use
• Encumbrances are a useful budgetary tool to
  manage cash flow at the end of the fiscal year

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Cost-Saving Purchasing Strategies

• Timing purchases when the demand for an item is
  at a low point
• Purchasing in large quantities or in cooperation
  with other agencies to get bulk pricing
• Standardization of materials
• Replacing items before repairs outpace cost
  efficiency
• Requiring increasingly stringent price
  comparisons for increasingly expensive purchases

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Capital Budgets

• Capital budgeting provides a parallel budget
  system for purchasing items or making
  improvements to facilities that involve
  expenditures that fall outside the normal
  budgeting guidelines
• Capital budgets are another tool that aids in
  creating an understandable, manageable, and
  transparent means of administrating budgetary
  funds

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Capital Budgets

• Capital expenditures are separated from the
  operating expenses of the organization as they
  require a different level of scrutiny in the
  budget planning and approval process and should
  be managed with a longer planning and execution
  strategy
• A capital budget item may extend beyond the
  annual fiscal year allowing for activities that
  fit better into a three-, five-, or ten-year plan