Tighten up financial systems

All charities are facing an uphill struggle over the coming months. This is no time to bury our heads in the sand and leave everything to the finance director.

Uphill struggle
Downturn effect can depend on organisation size
Financial management
NCVO's practical resources
Other resources
Publications
Case studies

Uphill struggle

All charities are facing an uphill struggle over the coming months. This is no time to bury our heads in the sand and leave everything to the finance director.

Nearly half of charities in England and Wales have been affected by the recession according to figures released in March by the Charity Commission.

In September last year, just 38 per cent of charities surveyed by the charity regulator said they had already been hit by the credit crunch. By March that figure had risen, with 52 per cent of the 1,000 respondents saying their organisation was facing problems as a direct consequence of the recession.

The majority (64 per cent) of charities with an annual income of over £1m said they were concerned that their services or funding might be greatly affected.

The new research also revealed some of the measures charities are taking to cope with their financial problems. Nearly a third (32 per cent) said they had taken various steps to limit the impact of the current financial climate, from reducing costs (14 per cent) to increasing fundraising efforts (11 per cent) or drawing on reserves (6 per cent). Other charities had cut or were holding off new services (5 per cent) or reducing numbers of staff (2 per cent).

Downturn effect can depend on organisation size

The research also showed that a charity's experience of the effects of the downturn varies depending on its size. Of those with an annual income of £1m or more, 46 per cent had financial issues. For charities with an income of between £100,000 and £999,000 the figure rose to 65 per cent, but for the smallest charities (those with an income of under £10,000), the figure dropped back to 60 per cent.

But only 23 per cent of the smallest charities had put measures in place to combat the effects of the downturn, compared with 65 per cent of the largest charities (those with an income of £1m or more).

Good systems for receiving information about financial performance will make all the difference, says Ben Kernighan, deputy chief executive, NCVO. Charities should also consider ways you can reduce costs - for example, through bulk purchasing schemes and more effective use of technology.

Financial management

So, financial management is the key to organisational sustainability, encompassing all activities which have a financial impact.

It provides direction, determines and clarifies accountability, evaluates resources and delivers information that can be used in planning, assessing impact and reporting. It also allows an organisation to identify legal obligations through implementing good practice in accounting for finances.

Financial management should be integrated into all aspects of an organisation's operations, from managing project budgets to gathering information for strategic decision-making.

During this recession charities should assume that all sources of income will be under pressure, while there are likely to be more demands on their resources. Budgets and business plans should be reviewed and charities should consider how they will respond to a further deterioration in conditions.

It is so much better to pre-determine how to act, rather than being forced to review options when crisis hits.

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NCVO's practical resources

Financial strategy: Planning strategically and holistically to effectively manage financial resources. Discover how to stay on mission through planning and monitoring performance.

Budgeting: Why budget and how? Learn how to identify and control potential problems before they spiral out of control.

Accounting: Understanding financial statements and preparing accounts. Compare the different models, tools and frameworks available and undertake an organisational health check.

Audit: What to expect from an internal or external audit. Read and tailor a model terms of reference for an audit committee.

Full cost recovery: Learn more about the background and types of overhead costs. Discover a template to understand and calculate full costs of projects, activities or services.

Managing financial resources: Learn how to implement, manage and evaluate procedures to maximise performance.

Investment: The options and methods available to manage reserves. View a sample investment policy to compare and/or adapt.

Risk: Minimise financial risk and maximise opportunities. Read a case study about implementing risk management.

Tax: An introduction of the main issues surrounding the sector and taxation. Read about the different types of donor relief and the necessary requirements to ensure success.

Other resources

The Community Accountancy National Network (CANN): A variety of financial management services and support close to home.

Model job descriptions: Accountant, Internal Auditor, Finance Director, Treasurer, Financial Management Advisor.

External support: Other organisations that provide financial management information.

Discount finance resources: Special deals for voluntary organisations on a range of financial products and services.

Publications

The Good Financial Management Guide for the Voluntary Sector - topics covered include: structuring the organisation for financial strength; budgeting; resource management; tax, accounts and financial management.

The Honorary Treasurer's Handbook - defines and outlines the key role of a treasurer.

Download The Guide to Financial Management from the Introductory Guide to Funding and Finance (PDF 758kb). This includes further information, tools and examples on financial techniques and processes.