Finances in the charity and not-for-profit sectors can often be challenging.
Over recent years, the impact of the pandemic, reduced charitable giving, rising energy costs and general inflationary pressures, have all taken their toll. Many longstanding charities have ceased to operate, with others radically cutting back on provided services.
Research by the Charity Commission has indicated that despite high trust in charities, with increasing numbers of people relying on their services, the percentage of the population who give to charities is decreasing. They have set out a range of recently updated guidance in CC12 Improving Your Charity’s Finances to help them manage this fiscal squeeze.
What can charities do to manage their finances better, while ensuring they can plan effectively for the future?
Improving your charity’s finances
Managing your charity finances through good times and bad requires careful planning, an effective overall strategy, and contingency plans for worst-case scenarios.
Develop your financial strategy
A strong financial strategy is the foundation stone of any successful charity.
This means setting clear financial goals, creating realistic budgets, and planning for future incomes and expenditures. The financial position and future cash flow forecast should be regularly reviewed to ensure it’s still realistic.
A strategic approach is essential to ensure that resources are used effectively to support the charity’s mission.
Diversify income streams
Only having one or two income streams can be risky.
The Charity Commission advised charities to diversify their income streams, exploring grants, new donations, fundraising events, or social enterprise activities.
Having a broader range of funding sources can significantly reduce your overall financial vulnerability and increase stability.
Financial controls
All charities need to have strong financial controls in place to prevent fraud and mismanagement. Finances should be consistently monitored through financial reports, income and expenditure tracking, and budget reviews.
Trustees should take responsibility for overseeing these processes while ensuring financial transparency.
Invest in financial management systems
Financial management systems are essential to ensure efficiency and accuracy in financial reporting.
These systems make it easier to track transactions, manage cash flow, and ensure the charity complies with relevant regulations.
A financial management system can also provide trustees with relevant real-time financial data to support informed decision-making.
Regular Trustee Oversight
Trustees are ultimately responsible for overseeing their charity’s financial management.
They should ensure that it has a clear, transparent financial plan and that regular reviews and audits are conducted. This oversight helps to ensure that the charity remains accountable to donors and beneficiaries.
What to do in a financial crisis
Act quickly if your charity is hit by a financial crisis. You need to assess the situation and prioritise core activities.
Trustees must review the charity’s overall financial position, adjusting budgets to reflect reduced income while focusing on essential services.
The Charity Commission CC12 guidance emphasises revising the budget, carefully managing cash flow, and being ruthless in cutting non-essential costs.
Throughout this process, effective communication with stakeholders, donors, and staff is essential to retain trust. Sources of emergency funding should be explored and applied for where relevant. Additional financial support, such as emergency grants or loans, may be available. Donor appeals or crowdfunding may also be an option to address short-term needs.
Trustees will need to focus on safeguarding the solvency of the charity and aim to make informed, transparent decisions. Once the immediate danger has passed, charities can begin to plan for recovery, rebuilding their reserves, and improving long-term financial sustainability.
Navigating challenging financial times with Wilder Coe
At Wilder Coe, we provide a comprehensive range of services for the charities and not-for-profit sector, that bring a fresh perspective to assist you with compliance and to help you achieve your goals. Whether you’re looking for further information and advice about the CC12, pending changes to Charities SORP, or another financial or regulatory matter, we can help.
When working with us, you will receive a highly specialised, bespoke service, bringing years of experience to help you meet challenges, and better plan for the future.
We work with charities and social enterprises of all sizes to help them maximise their impact on their beneficiaries in an increasingly complex world.
Contact us today for further advice and information.
