The online RCAP Resources Library has a variety of resources that are useful to small, rural drinking water and wastewater systems.

Budget How-Tos

Tick, tock, tick, tock.

The time is approaching to have those debits and credits in order, to know what will need repairs next year, what will need replacing and how you’re going to pay for all of it.

It’s budget time.

Before you pull your hair out trying to figure out those decimals, numbers and spreadsheets, let the eBulletin give you a few hints and tips to prepare the perfect, balanced budget.

Budget How-To’s

Budget preparation may be the most dreaded task a water board can face. It’s like having to sit down after a month and balance the checkbook. Who enjoys doing that? (OK, I know of one friend who does, but even he admits it’s freaky. But I digress…)

While we can’t take away all the headaches of budgeting, we can offer a few tips that might make the process go more smoothly. Let’s start at the best place to start a budget. The…um…start.

Tip #1: Get started early.

If you’re just now starting to work out your budget, chances are you’re going to be squeezed for time. This makes it possible to miss things when planning the budget, such as expense changes, new necessities or even the chance for added revenue. It’s important to allow plenty of time to thoroughly examine all aspects of the budget for the coming year.

Communities Unlimited, the southern affiliate of the Rural Community Assistance Partnership, provides a reference chart in its publication, Small System Guide to Financial Management. The publication also includes worksheets to help you figure out costs, revenue and what changes will be needed for the coming year. It also includes a chart that details what part of the budget should be done during what month of the year.

For example, the ninth month of the fiscal year is the time to appoint a budget committee and determine the Required Debt Service Reserves and the System Financial Reserves. By the end of the next month, an expense budget should be drafted, reviewed and approved by the water board. Revenue adjustments should be determined in month 11, and by the end of the year all that should be left is a final review and approval by the water board.

The entire chart can be found as a PDF at the link listed below.

Tip #2: Appoint one board member to be in charge of the budgetary process.

There’s an old saying, “Too many cooks spoil the broth.” That easily can be the case for the budget. Everyone wants to throw in their two cents, figuratively and literally. We have a tip to help keep the process running smoothly.

It’s understood that everyone has their own ideas about the next year’s budget – what needs more funding, what needs less, what needs funding. But if several people are modifying the budget, the end result usually is a jumbled mess.

The best course is to create a budget committee, even if it’s composed of every member of the water board or only a few members. Everyone should have their say in how the budget is put together, but it’s a good idea to appoint one person, such as the committee chairman, to do the actual paperwork.

That person would be in charge of writing up the budget and ensuring all the figures check out. A consensus can decide what items make it or don’t, but the final budget itself should be drawn up and modified by one person only.

If it’s a concern, checks and balances can be added, but most budgets must be approved by the water board, the mayor or the city council, which usually takes care of any checks or balances issues.

 

Tip #3 Make separate water and sewer budgets, if you do both.

Your systems seemed healthy, but somewhere along the way a lot of revenue was eaten up during the year. Which is the culprit, the water or the sewer? It may not take as much time to answer this with separate budgets that are combined later. Creating separate budgets may show that your water rates are fine, but the sewer rates are too low. Perhaps travel expenses are far greater on the water side. Or maybe you’ll need more for drainage equipment next year than you’ll need for water repairs. Tackling them separately then combining them later can help create more accurate budgets that will get you through the next year without too many major, unexpected deficits.

 

Tip #4 Use past, present and future figures to plan the expenses and revenues.

When planning next year’s budget, don’t just look at the expenses and revenues from the current year. Check out last year’s actual figures as well. Doing this can help you determine which categories of expenses or revenues go up or down each year. While the year isn’t over, you should be able to estimate revenues and expenses for the remaining months. Figure out the percentage change from last year to this year. Then apply that percentage to next year’s estimates. If you need help figuring out those percentages, check out the percentage calculator below. Don’t forget to add any expenses or revenues you expect in the next year that you may not have had this year. New loan payments, anticipated grant funding, expected equipment replacement – any of these can throw a budget into chaos if not noted ahead of time.

Additional Resources

3-Way Percentage Calculator

http://www.math.com/everyone/calculators/calc_source/percent.htm

Tip #5 Don’t forget the little things.

Make your budgets as detailed as possible, and plan for everything, even the little things. Instead of just a blanket category of “office expenses,” divide this up, because there may be ways to save that you won’t spot otherwise. How much will you spend on postage, and is it going up the next year? Is anyone going to need a new computer? A new cell phone? A new notepad? A new pen? Some of those may not seem like major expenses, but many of them over the year can add up. Also, don’t forget to set aside money for things like insurance, gasoline, possible trips, equipment leases, and of course, employee pay raises. It will be easier to spot if a particular category’s expenses are too high, which will make it easier to find alternatives. Can bills be paid electronically to save on postage? Is it cheaper in the long run to buy a computer or office furniture rather than continue to lease it? Are gas prices expected to go up or down next year? Is there a better and cheaper place to do maintenance on water system vehicles? A few snips here and there can mean more money in the bank.

 

Tip #6 Estimate month-to-month expenses and revenues, and be as accurate as possible.

It’s important not only to estimate the annual budget, but to estimate the monthly ones as well. You may have one-time expenses or revenue to note, and this will make it easier to keep track of those. A month-to-month budget estimate also will come in handy later.

 

Tip #7 Set something back for a rainy day – or several of them.

It’s good to have a balanced budget, but it’s not so good to have a thin line between revenues and expenses. It’s important to set money back each month in case of an emergency. (Let’s be honest, have you gotten through a year without some kind of emergency? Has anyone?) For small water systems, it may be difficult to set money back. But it’s an important thing to do. Otherwise, you could be scrambling if a main breaks, a drought dries up a water source, a flood ruins a drainage system or a fire takes out a pump station.

 

Tip #8 Re-evaluate your rates.

No one likes water rate increases, but sometimes they become a necessity, especially as a water system ages and needs more repairs or replacements. The last thing you want to do is put off a rate increase for several years until you’re forced to raise prices significantly. It’s better to add rate increases gradually, so your customers won’t get too angry from sticker shock and so you won’t have to wait forever for that added revenue to actually trickle in. Just make sure you have solid reasons for the increases and you can explain those reasons clearly to your customers. If you’re unsure whether a rate increase is needed, consider having a rate study done. RCAP regional affiliates provide such services, often for free.

 

Tip #9 Help yourselves out.

Cutting costs is an important way to scrape up extra revenue, but there are other things you can do to add money to the coffers. Plan on replacing leaking equipment, for example. It may be costly at first, but it could save hundreds, and even thousands, down the road. Be firm with customers about making payments and keep a sharp eye out for meter tampering to prevent water theft. Make sure your payment records are kept correctly and are up-to-date. Buy items such as chemicals in bulk for cheaper rates. Keeping tight reins in these areas can save a bundle over the years.

So you’ve taken the tips into account and created the perfect budget. The next year arrives, and you can put the whole budget mess behind you until September, right?

Well, you could, but chances are you’d just end up in headache central again once budget time rolls back around.

Which leads to our final tip…

Tip #10 Monitor the budget throughout the year.

This is where Tip #5 comes in handy. It’s it a lot easier to glance at those month-to-month budget estimates and see where you stand by May or August. Are you ahead or behind? Does everything appear to be on track? Equipment failures can happen at any time, but by monitoring the budget, you’ll know if you’re ready for them. If you know in May you’ll need more money than expected in September, you can make the necessary adjustments to build that money gradually, rather than trying to scrape for every dime at the last minute.

These tips can make budget planning a lot easier, and may save you from a lot of hair-pulling. So allow yourself plenty of time, be thorough and prepare for known and the unknown. Trust us, your scalp will thank you.