Forecasting: income, capital and revenue costs

You will need income and spending projections and cash flow projections for at least three years. Projections are always guesstimates but should be based on real figures as much as possible. These might include historic costs from the Local Authority or previous operator, your own historic costs, estimates and quotes, figures from the accounts of similar size and type businesses and facilities.

There are a few other important points:

  • Don’t get caught by ‘optimism bias’ – assume income will be worse and costs higher then you hope
  • Remember to build in inflationary uplifts
  • Always include contingency cost lines, a sinking fund and funds for essential repairs and maintenance
  • Don’t forget additional staffing costs like training, redundancy and HR advice.

Definition of costs

Capital costs: are the costs which relate to the structure, site and equipment. Capital costs will also include all the professional costs related to a building project such as the architect’s fees.

Revenue costs: are the ongoing costs of running your facility including staffing, utilities, marketing and minor repairs.

Common business income streams

Income sources can be very varied and range from donations to sales of goods and services. Here are some of the most common types of business income streams and products and services for community businesses:

  • Room/Pitch/equipment hire
  • Management fees
  • Membership fees and charges
  • Grants and donations
  • Public sector contracts
  • Catering/bar/social events
  • Corporate sponsorship
  • Personal social care budgets
  • Training, apprenticeships and alternative education
  • Corporate team building
  • Sale of merchandise
  • Fundraising events.

 

Potential capital costs and investment sources for a building project

Costs Investment sources
  • Site investigations, survey costs, (e.g. noise, traffic, environmental), planning fees, building regulation fees, legal fees
  • Ground works, construction, finishes, furniture, fittings & equipment, external works
  • Professional fees: Architect, Structural Engineer, Mechanical & Electrical Engineer, Quantity Surveyor, Project Manager, Building Surveyor, CDM Coordinator
  • Project management
  • VAT
  • Purchase costs and Stamp Duty Land Tax, (there is relief for registered charities)
  • Renewable energy installations & other green features
  • Sinking Fund (reserve fund for future work)
  • Contingency
  • Grants
  • Loans
  • Equity/Community Shares,
  • Donations/fundraising
  • Crowdfunding
  • Reserves

 

Potential start-up costs & investment for a new community organisation/business

Costs Investment sources
  • Development staff
  • Professional fees, e.g.
    • Legal costs of incorporation
    • Feasibility studies
    • Business Planning
    • Architects
    • Accountancy
  • Office/building/land rental or land/asset purchase costs and Stamp Duty Land Tax (there is relief for registered charities)
  • Equipment for office or activities
  • Publicity
  • Six months running costs
  • Grants
  • Loans
  • Equity/ community shares
  • Donations/fundraising
  • Crowdfunding
  • Reserves

 

Potential revenue costs and income for a community organisation

Costs Income
  • Staff salaries (including employer’s national insurance, pensions, holiday cover, recruitment, training, travel)
  • Volunteer costs (expenses, training)
  • Rent/mortgage
  • Insurance (land, buildings, public liability, employer’s liability, contents, consequential loss)
  • Fire compliance
  • Professional fees – audit and legal
  • Administration, book-keeping
  • Memberships e.g. Governing Bodies
  • Licenses (e.g. performing rights)
  • Utilities (gas, electric, water/drainage rates)
  • Information technology, post, stationery and reprographics
  • Promotion, publicity
  • Marketing/letting
  • Caretaking & security
  • Cleaning, laundry
  • Waste management/disposal
  • Consumables
  • Catering/vending
  • Landscaping, grounds, pitch, track maintenance
  • Cyclical maintenance, (decoration, repairs, etc.)
  • Repairs and renewals/sinking fund
  • Replacement of equipment
  • Transport
  • Business Rates (there is mandatory rate relief of 80% for charities, rate collecting authorities can waive the remaining 20%)
  • VAT and corporation tax
  • Loan repayments
  • Allowance for bad debts, voids (unlet property)
  • Bank charges
  • Rents, fees and charges, venue / pitch hire, sub-letting parts of the asset, (subject to the terms of the property agreement)
  • Membership subscriptions
  • Sale of goods & services e.g. food & drink, coaching, merchandise
  • Fundraising & grants for projects
  • Public sector contracts
  • Loans and other forms of social investment
  • Feed-in-Tariffs for renewable energy
  • Prices should be set relative to the market
  • Market research can help decide what trading is likely to be most profitable
  • Show your assumptions e.g. no. of hours of regular & casual usage by different clubs & users
  • Charities can claim gift aid on donations
  • Don’t forget to show VAT refunds if relevant

 

Example of a cashflow forecast (99.5KB pdf)

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