One of the most important tools you can have is an annual operating budget. It covers the income and expenses you expect over twelve months. Every water system should complete the annual budget with care; even though it may not seem as important as your physical infrastructure, it provides a reference point for your activities over the year and can help you manage challenging financial periods (such as when you are faced with unexpected expenses).
Operating expenses are generally shorter-term costs and include, for example, salaries, insurance, and consumable items.
Capital costs are incurred for more tangible things such as buildings or new equipment. They are excluded from the annual operating budget process although the annual operating budget may include contributions to capital reserves.
Operating revenues include the charges you make for supplying water to customers.
A new budget must:
- cover a fixed period (in this case, one year)
- have a defined scope (in this case, operating revenues and expenses)
- be formally documented (typically, by using worksheets)
Your financial records showing past revenues and expenses, together with information from your Five-year plan, will help you build a realistic operating budget for the coming year. An annual operating budget differs from a project budget, which is one that is allocated to a special project such as the building of a new treatment plant. Larger project expenditures are typically shown in capital plans, and not in annual operating budgets. You can use this worksheet as well as this one to create your budget, or make your own.
Steps in Preparing an Annual Budget
Regardless of the method you use to create it, the annual budget should refer to your Five-Year Plan. It is good practice for all water systems to prepare a Five-Year Plan. This shows the expenditures you plan to make in the next five years and may also refer to provisions for increasing revenues. Refer to your Five-Year Plan when preparing the annual budget and include any items from the Five-Year Plan that should be accounted for in the current year budget.
Five Year Operating Plan Worksheet by the Sustainable Infrastructure Society (this contains a worksheet for the current year)
Five Year Operating Costs Worksheet by the Sustainable Infrastructure Society (this contains a worksheet for the current year operating costs)
The Canadian Water Directory also provides longer documents outlining the steps needed to create a basic asset inventory and an asset management plan, if you are looking for a more detailed approach.
Financial Best Management Practices Guide by the Sustainable Infrastructure Society
Small Water System Guidebook, Chapter 9 - Financial Management, Feb. 2017
A Sample Budget, Oregon Health Authority, Drinking Water Services
Financial Planning: A Guide for Water and Wastewater Systems, Rural Community Assistance Corporation, 2006 (a USA nonprofit organization that assists rural communities)
Taking Stock of Your Water System from The Environmental Protection Agency of the United States
The Basics of Financial Management for Small-community Utilities, Rural Community Assistance Partnership (RCAP), Chapter 3 Annual Operating Budgets, 2011 (a USA non profit organization that assists rural communities)
The steps and ideas outlined above have been presented with permission from, and thanks to, The Canadian Water Directory, which is operated by the Sustainable Infrastructure Society. © 2005-2022 Visit the Sustainable Infrastructure Society at https://waterbc.ca/