Effective financial charity management is essential in the third sector. It ensures the success and sustainability of any charitable organisation and underpins public confidence in the industry itself.
To facilitate effective charity management in the sector, UK charities are subject to a range of regulatory requirements. The Charity Commission also publishes guidance on charity governance, including financial management.
Here are our 5 tips to support effective financial management in the charitable sector:
Develop a robust charity management financial strategy
Good management is predicated on a robust financial strategy.
Clear objectives, such as the amount of funding required and the sources of income that will be pursued, are necessary, and it should also outline the risks and costs associated with the charity’s activities, identifying ways that these can be managed effectively.
The financial strategy should be updated and reviewed to ensure that it remains relevant and effective.
Some simple questions you can ask to assist with this process are;
- What is your cash position?
- What does your cash flow look like?
- Where will the income/funding come from?
- Are there any major events that need to be considered?
Understanding the answers to these questions will help ensure the right steps are taken within the financial strategy to mitigate potential risks.
Carefully monitor income and expenditure.
Charities must carefully monitor their income and expenditure, in a timely fashion, in line with their financial strategy and overall objectives.
This should involve keeping accurate and up-to-date records of all financial transactions, including income from all sources and donations.
You should establish a “reporting pack” or regular reporting information that provides sufficient and appropriate information to make informed decisions.
Income and expenditure should be tracked by categories such as fundraising income, grant income and project costs. You must also consider whether any income is restricted, i.e. it needs to be used for specific purposes set by the donor and that appropriate expenditure is matched against this.
Systems should also be in place to ensure any errors or discrepancies are quickly identified and corrected.
Establish effective financial controls.
Charities must ensure that funds are used for the intended purpose and that assets are safeguarded. To do this, you need to establish effective financial controls, including implementing robust internal controls to prevent fraud, such as separating financial duties, where possible, and regularly reviewing financial records.
Do you have policies in place establishing how purchases are made and authorised?
Larger purchases should require multiple signatories, and all expenditures should be properly documented and approved.
Prepare accurate financial reports
Accurate financial reports need to be prepared for both internal and external use. Stakeholders need you to deliver an understanding of the charity’s financial position and performance, and annual accounts will need to be prepared in line with the Charity Commission’s requirements.
Regular management accounts will also inform decision-making and future strategy.
Accurate financial reports enable charities to plan and budget effectively and identify opportunities as well as any potential financial risks.
Seek professional charity management and financial advice.
Charities may benefit from seeking professional advice to help them manage their finances effectively.
This may include engaging the services of a qualified accountant or financial advisor who has experience in the charity sector. The larger the charity and the more complex its finances, the more extensive this advice is likely to be.
Experienced charity finance specialists will provide valuable advice on charity management, help to develop strategies, implement financial controls, and prepare financial reports. They can also ensure that charities meet their regulatory requirements.
Get in touch
At Wilder Coe, Charlotte Willmore and our team of Charity advisors understand the challenges that trustees and management face when running charities and look to bring a fresh perspective to assist you with compliance and provide extra help when required.
Contact us to discuss your charity management and learn how we can help maximise income streams and plan effectively.
