BEM – Financial management and the budget

1. BEM – Financial management and the budget Lim SeiKee @ cK

2. Q • Define Income and Expenditure. • What are the examples of income and expenditure of events management? • Is it important to have a budget? Why or why not?

3. Introduction • Financial planning and good financial control are important aspects of the event management process. • INCOME & EXPENDITURE • It is extremely important to monitor, record and control these.

4. Careful assessment of potential income, expenditure and profit, surplus or break-even has to be done depending on the type of event. • It normally comprise a list of what has been spent or what has been made (what is planned and what actually happened- both forecast and actual)

5. Example: if the wedding was planned to cost $5,000 but $10,000 was spent, someone had to find the money. • The function of financial control is to tell us what happened, but it also takes place before and during an event.

6. Importance of budget • Beforehand, a budget will be needed so the • organizers can judge whether the event is likely to be a success, • and afterwards as a guide to see whether the event could be judged successful against its financial objectives. • Additionally, event organizers can look at ways in which the potential income for an event could be increased, and also at the public funding of events and sponsorship.

7. Objectives and financial planning • The setting of objectives is important for the entire event and also the key to what has to be done financially. • Small personal events: • awareness of the potential spend • Large events on a regional, national or international scale: • financial aspects may have to become the subject of financial feasibility studies based on a range of possible techniques.

8. One key to the effective financial management of events is the appointment of someone responsible for it. (Finance manager / controller / officer) • Many event organizers do not fully appreciate the financial implications of the decisions they are making and are consequently surprised, when the accounts are done, how little profit has been made or how big a loss has been incurred.

9. Link between objectives and financial management • An organizational event • Sales manager’s team-building day: • Primary: to improve the team skills of the sales department • Financial: To keep within the budgeted cost allowed for staff development • A personal event • Family wedding • Primary: to celebrate the wedding and have a good time • Financial: To cost less than $5,000

10. Key Objective: To raise enough money to rebuild the city stadium. • Q: Does it sound like a good objective? Why or why not?

11. NO! • A key objective is to raise enough money ‘to rebuild the city stadium’? • if it is not known how much that would cost, and whether the budget for the event will actually be able to cope with it. • The objectives and the financial management are intimately linked. The budget is about measuring.

12. $$ matters • Cash flow issues also tend to be serious, particularly for events that involve pre-booking, such as a fund-raising dinner. • Some expenditure or investment may well have to take place before any income is generated or tickets sold. • Venues for events often have long lead times for bookings and require money up front to hold.

13. Simple scenario: • Event month: August 2014 • Suppose you need to pay a booking fee of $1,000 (caterers, entertainers) in June 2014 • Capacity of events: 250, booking deadline in June • In a basic way, financial manager will either have to find $1,000 from existing funds or, in case of no funds, get 250 deposits of $4 per person. • OR: sponsorship, donations or borrowing

15. Creating a budget • The planning of a budget may not be as easy as it first appears, since a great deal of information has to be collected, and many new techniques learned, which might not be obvious at the start. • The budget for an event may be no more complicated than a list of revenues and costs, or it may be vastly complicated.

16. Some common budgeting mistakes • Ignoring the objectives of the event when setting the budget • Plucking a figure out of the air for ticket sales before finding out how much the event is going to cost • Not involving everyone concerned in the budget preparation and failing to identify the full range of costs accurately • Being over-optimistic about demand for the event, or failing to find a venue with enough capacity to do it properly

17. How much to charge? • Not good enough to say “We must make it cheap or no one will come” • “My mate said it would be the same as the one they did last year.” • In some cases there would need to be more than one quote. • Quotations should be made on like for like basis, and the criteria decided.

18. Differential pricing of tickets • Differential pricing allows the event organizes to provide a range of tickets at a range of prices, • for example, family tickets, group tickets, full price or off-peak tickets. • Q: Suppose our event needs to sell 120 tickets at $10 each to make our target profit, but estimates show only half are willing to pay full price.

19. A. Cancel • B. We find the rest who are willing to pay $6 (‘contribution price’ tickets) • Fixed costs $5 per person. • It depends on whether the $6 will be enough to cover the fixed costs, and if enough people paying full price still want to come.

20. Work out the: • (A) Full profit • (B) Break-even • (C) Total income of: 60 full price, 60 contribution price • Q: Suppose our event needs to sell 120 tickets at $10 each to make our target profit, but estimates show only half are willing to pay full price.

21. (A) Full profit = $1,200, • (B) Break-even = $750 (total fixed and variable cost) • 60 full price tickets = $600 • 60 contribution price tickets ($6) = $360 • (C) Total income: $960 • Results: Couldn’t sell all tickets at full price and make the full profit.

22. Discount? • Forget ‘discount’, as it gives you the wrong idea, since the contribution tickets still have to cover all fixed costs, and you still have to sell enough of all tickets to cover the total costs. • It is about having differential ticket prices for different times, for different target markets and different groups, in the knowledge that not everyone will pay full price, at any given time.

23. Contribution price is the reason why you pay less at an off-peak period when you visit a leisure center or a theme park.

24. How many people will attend? • In order to prepare a reasonably accurate budget, the estimates of attendance may be based on • surveys of the market, • attendance at similar or previous events, • knowledge of the size of the available customer base. • It is important to be realistic about how many tickets can be sold and whether the venue can be filled, or whether the budget should estimate to break even, if, say, half the venue is filled.

25. Break-even is a key issue and sometimes not well understood. • Say an event will cost $500 to put on, and the venue will accommodate 100 people. • What to do? • Sell 100 tickets at $5. Right?

26. Sell 100 tickets at $5 = $500 • BUT, you would make a loss even if 99 out of 100 tickets were sold. • You have to consider what your realistic break-even point is. • To make $100 profit, you would have to sell 100 tickets at a ticket price of $6, not $5

27. Figure 7.4 • It help you to understand what is needed and what information may be missing. • It may also show that once you have identified all the costs, your first ideas about how much to charge as an entry fee or ticket may be completely wrong. • It may also be evident that there is no margin of safety in running the event between its revenue and its forecast costs.

28. Outline budget • It helps to identify what further information is needed to prepare a more detailed budget forecast. • What are the differences between Fixed and Variable costs?

29. For example, for X people attend, the cost of hiring a tent is $1,450 – fixed cost. • WHY? • Whether one person or 100 people attend – the cost is still the same. • For example, sit-down meal costs $20 per person. • If 1 person = $20, 50 people = $1,000, 100 people = $2000 • This is a variable cost.

30. Exercise • Given the following data, work out the ticket price if 40 people is attending the event. • Venue: Luigi’s Garden Bistro • Venue capacity: 60 • No. of guest expected: 50 • Costs • Venue hire 0 • Staffing costs 0 (included in meal) • Printing 50 • Menus & place cards 50 • Food 1,250 (sit down meal) • Reception drinks 300 • Band 500 • Raffle prizes 100__ • Total estimated costs 2,250

31. The detailed budget • A budget is a forecast or plan, which helps to regulate the operation of an event (or any business) over a given period of time. • Events are one-off and time limited, the budget will normally be for the time period of that event.

32. The detailed budget The budget, both a forecast of what is intended to happen and a record of what is happening (or, after the event, of what had happened), acts as a means of comparing the forecast with the reality and sets targets that the organizers can strive to achieve.

33. Advantages of having a budget • It is a detailed forecast of what should be happening financially. • It is a financial guide. • The budget should result in better co-ordination between the organizers of an event. • EG: Revenue budget, publicity budget.

34. Budgeting is also a method of controlling expenses and costs  because it should help to establish clear lines of responsibility about who can or cannot spend money. • The budget should make managers aware of costs and revenues, so that they do not become over-enthusiastic in spending money, or fail to exploit an opportunity to make money. • IE: Media celebrity may charge a major fee for appearing.

35. The budget should also seek to ensure that the resources the organizer has are most economically or efficiently used, thus helping to keep costs under control or to ensure a profit or surplus is made. • Staffing • Small event: minor costs (ushers) • Big event: full and complete details (ushers, staff, volunteers)

36. Who spends what? • Detailed budget must be approved by the clients or the organizing committee, only then preparations can begin. • Each part of the budget needs to have someone responsible for it (not just the finance officer who wrote it). • For example, advertising expenditure budget of $1,000 is expected to be used to attract 500 people to the event.

37. Events management depends on the ability of managers and events organizers to solve problems, often very quickly. • Still remember the Millennium Dome? • – the inability to deal with the problem of not being able to get enough tickets out to enough people might have resulted from the ticketing manager’s lack of authority to spend enough money to get the tickets out in time

38. Petty cash • Petty cash is a small amount of money for items that have to be paid for in cash. • For small items, petty cash may be needed and a system will have to be set up to issue it. • At the end of the event, the various petty cash vouchers and receipts, together with the major receipts and invoices, will be collated to make up the final accounts.

39. The budget is a mechanism for showing what is going wrong. • If the budget shows a forecast expenditure of $1,000 on seating, but the real cost is $2,000, you need to find out why, and to do so quickly. • You can: increase the price or cutting back on something else. • It is important to take very rapid action!

40. Income is derived from people buying tickets. • Apart from that, what are the other sources of income or revenue besides the ticket sales? • These sources may be other revenue-generating activities, or sponsorship-related activities.

41. Q: Other sources of income of events? • Programmes / brochures / guidebooks • Catering / fast food / sales stalls • Retail / souvenirs / clothing / merchandising • Corporate hospitality areas / lounges / chill-out areas • Photography charges / photography sales / video • Car parking / transport services • Concessions / stalls / stands / pitches / rentals • Broadcast rights (usually major sporting events only)

42. Next week, • Financial management and the budget (B) • Other sources of income • Sponsorship and public funding