Budget | 1

CHAPTER 12

BUDGET
A budget is an estimate of the income and expense for a specific period of time. You would like
to avoid unnecessary expenses. You would like to be able sleep soundly knowing you have done
everything possible to get value for your money.

Learning Outcomes
After studying this Chapter, you will be able to
1. Discuss the various sources of event revenues
2. Analyze event expenses
3. Prepare an event budget
4. Prepare simplified financial statements

If you are working with corporations and associations, they may already have prepared the event
budget ahead of time. You will have to work around their forecasts. Changes may require a litany
of reasons justifying the corrections for board approval, but it is always worth a try. Otherwise,
you will have to be creative. Reduce some, add a few or better yet, delete low priority items.
If you are starting from scratch, it is best to include every possible expense item
on your list. You will also have to match these with the right suppliers who can give you the best
rates for your logistical requirements.

Key Terms You Need To Know

BOOKEEPING
It is the process of recording business transactions in chronological order. The records forms part
of the accounting information system.

ACCOUNTING
It refers to the information system that includes the recording, classifying, summarizing. analysis
and interpretation of the business performance at a specific period in time.
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FINANCE
Finance is the art and science of managing money. Financial Management is about sources and
uses of funds. You may not be too savvy with numbers.
You may not even like mathematics. However, as a professional event manager, you
need to understand the concepts of revenues and expense as well as three financial statements,
namely, Income Statement, Balance Sheet and Statement of Cash Flow.

INCOME
Income refers to what remains after expenses and taxes are deducted from the revenues.

Revenues

These represent monies you receive in exchange for products and/or services. The formula for
computing revenues is:

Revenues = Unit Price x Number of Units

Here are your possible sources of revenues are as follows:

 Sponsorships
 Donations
 Barters
 Ad placements in your even collaterals
 Ticket sales
 Exhibit booth rentals
 Registration fees
 Entrance fees
 Membership fees
 Sales of merchandising items
 Exhibit booth space rentals
 Concessionaire rentals
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Table 2. Income Budget Template

Expenses

Expenses refer to fees you need to pay and the costs of running the event. You can negotiate the
amounts to gets discounts and preferred rates. There are two main types of expenses, namely,
fixed and variable.

Table 3. Expense Budget Template

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FIXED EXPENSES
These are expenses that remain constant irrespective of changes in quantity. Quantity can refer to
the number of delegates, booths, function rooms and meals. For example, your office rental will
be the same whether the concert tickets you are selling have been sold-out or not. In another
scenario, your administrative employees' salaries (commissioned-based personnel excluded) will
be the same whether or not they fill-up the convention center with booths or not.

Here are some examples of fixed expenses:

 Audio visual equipment  Personal salaries
 Speakers  Transportation
 Insurance  Entertainment

VARIABLE EXPENSES
These are expenses that vary with changes in quantity. For example, you will have to pay more
commissions (to salespersons or ticket outlets) if they sell more concert tickets, unless you have
negotiated for fixed salaries. For an exhibit, you will have to pay more rental fees to exhibit
contractors if you ask them to set up more booths for your event.

Here are some examples of variable expenses:

 Additional site rental fees  Advertisements

 Communications costs  Electrical, gas and water charges
 Room rates  Rehearsal costs
 Décor  Shipping, handling, and drayage
 Food and beverage  Gasoline
 Gifts and tokens  Office supplies
 Printing of invites and collaterals

OTHER EXPENSES
Aside from the fixed and variable expenses, the other expenses are taxes, service charges,
gratuities, and attrition contingency funds.

• Taxes
Quotations for meals and rooms usually have a notation "plus tax and gratuities" or "plus
tax and fees." These are quoted in percentages rather than in Peso amounts and can be
subject to negotiation with the venue management.
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• Service Charges and Surcharges

SERVICE CHARGES are billed by facilities and service providers to offset labor costs and/ or
equipment maintenance; while SURCHARGES are imposed to cover extra-ordinary incidents
such as the rising fuel prices.

• Gratuities
These are defined as favours or gifts, usually in the form of money, given in return for good
service. It is computed at 15-20% of the total costs of service. It is not a common practice in the
Philippines, but these should be budgeted in addition to service charges.

• Attrition Contingency Fund

This refers to a clause in the contract requiring a "minimum guaranteed number" to ensure that a
hotel earns the expected revenue from the meeting in terms of rooms and/ or food service
revenue in case the event falls below expected numbers. For example, if you reserved 100 rooms
for your event and only 80 of those rooms were used, the venue (usually a hotel) can invoke the
attrition clause and bill you for the 20 rooms that remained unused.

Income and Expense Report

This is a summary of the amount of money received and the amount of money used during a
specific point in time.

Table 4. Profit-Loss Summary

Financial Statements

Financial statements give you the status of your financial activities at a certain point in time.
There are three types of financial statements, namely, balance sheet, income statement, and the
statement of cash flow
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BALANCE SHEET

The Balance Sheet shows assets, liabilities, and capital of a business or an event at a specific
date. The assets of a company must equal the sum of its liabilities and equity.

The formula is: Assets = Liabilities + Stockholder's (Owner's) Equity

Table 5. Pro-Forma Balance Sheet of an Event Management Company (20xx-20xx)

20xx 20xx 20xx

Assets

Total Current Assets 1,604,982 2,436,969 5,000,074

Non-Current Assets,
447,000 584,775 627,464
Net
Total Assets 2,051,982 3,021,744 5,627,537

Liabilities &
Stockholder's Equity
Total Current
357,600 233,910 276,720
Liabilities
Non-Current
16,986 22,221 26.288
Liabilities
Total Liabilities 374,586 256,131 303,008

Total Equity 2,417,967 256,131 5,324,529

Liabilities &
2,051,982 3,021,744 5,627,537
Stockholder's Equity

INCOME STATEMENT
An Income Statement shows the profitability of an organization at a specific time. It report the
revenues and expenses as well as the net income (or net loss) on the period stated.
A company reports NET INCOME if its revenues are higher than its expenses. On the
other hand, NET LOSS means that its expenses exceeded its revenues.

Table 6. Pro-Forma Income Statement of an Event Management Company (20xx-20xx)

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20xx 20xx 20xx

Service Income
Exhibit Participation
6,720,000 8,316,000 9.240.000
Fees
Seminar Fees 356,400 438,750 840,000

Total Service Income 7,076,400 8,754,750 10,080,000

Expenses

Costs of Services 5,764,576 7,358,509 7,358,851

Other Expenses 425,984 458.378 479,998

Total Expenses 6,190,561 7,816,887 7,838,849

Income Before Taxes 885,839 937,863 2.241,151

Income Taxes 265,752 286,048 672,345

Net Income 620,088 651,815 1,568,806

STATEMENT OF CASH FLOW

The Statement of Cash Flow reports the changes in cash and cash position due to operating,
Investing and financing activities.

Table 7. Pro-Forma Statement of Cash Flow of an Event Management Company

(20xx-20xx)

20xx 20xx 20xx

Cash Flow from
Operating
Activities
Net Income 4,365,625 1,568,806 702,552
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Adjustments to
reconcile net
income to
net cash provided
by operating
activities

Add: Depreciation
52,630 39,396 35,087
Expense
Less: Increase in
Accounts (42,810) (22,305) (22,080)
Receivable
Less: Increase in
(12,991) (13,082) (15,518)
Prepayment
Add: Increase in
42,810 22,305 22,080
Accounts Payable
Add: Increase in
income Tax 4,067 2,119 2,098
Payable
Add: Increase in
170,522
Notes Payable
Less: Increase in
Sponsorship (1,854,013)
Receivable
Net cash from by
(1,810,307) 28,433 192,189
operating activities

Cash Flow from

Investing Activities
Less: Purchase of
(95,319) (63,547)
Equipment
Net cash used by
investing activities

Cash Flow from

Financing
Activities
Less: Payment of
(2,352,973) (1,540,126) (775,993)
Cash Dividends
Net cash used by
financing activities
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Net increase in
107,026 57,113 55,200
cash

Add: Cash at
851,835 547,541 389,850
beginning of period

Cash at end of
958,861 604,654 445,050
period

Committees

The Finance Committee works with the Audit Team and the Secretariat with regards financial
decisions.

FINANCE COMMITTEE
The Finance Committee is tasked with the following responsibilities:

 Develops a comprehensive budget, based on input from each committee

 Works with other committees in developing objectives
 Determines appropriate ticket prices and/or other fees
 Pays all bills and expenses in a timely manner and receives all revenues
 Maintains accurate financial records
 Prepares final accounting after the event, determining net funds raised

AUDIT COMMITTEE
The Audit Committee is responsible for these tasks:

 Evaluates the accuracy of the records.

 Acts as the "check and balance" for the transactions
 Monitors compliance with payments
 Reviews vendor contracts