3 Top Tips for Managing your Charity's Finances

If you run a charity, then you know the challenges that come with managing your funds given that you don’t have enough resources to employ a dedicated financial team. This is especially true for smaller organisations.

However, for your charity to achieve its purpose, you need to maintain its good financial health. You also need to be financially literate enough to make informed decisions about your charity’s resources and know-how to put systems in place to make sure it’s running like a well-oiled machine.

Let’s take a look at our top three tips on managing your charity’s finances.

1. Trust Someone with Strong Financial Skills

Regardless of charity size, someone needs to be in charge of the organisation’s finances. It can either be the responsibility of one person or be divided among a number of people.

Whether you need to hire a financial manager from the outset or have someone else on the team (e.g. trustee, volunteer) handle this task is ultimately up to you. However, that person needs to have a solid grasp on managing finances, interprets financial data, and knows how to ask the right questions.

Either option works, even for smaller charities but there is a need for sufficient oversight (e.g. CEO, senior management, treasurer, board) as well as setting up appropriate safeguards and procedures for authorisation to ensure that things run smoothly.

2. Train Your Team

You have several options that you can invest in to provide additional training to the person in charge of your finances, including:

3. Practice Effective Financial Management

According to the updated release of the Charity finances: trustee essentials (CC25), trustees should have a realistic plan for the charity’s future, identify risks, put in place strong internal financial control policies, and reserve funds for any unexpected expenses.

To do all these, you need to practice effective financial management:

Manage Finances

Meet your charity’s short and long-term goals by doing the following:

  • Review current financial standing and how it affects the charity’s goals.
  • Find out where income will come from and put contingency plans in place in case that income stops (i.e. have other sources of income).
  • Review financial policies with the team.
  • Use reserve funds as per the wishes of the donor.
  • Set realistic annual budgets that include yearly goals, activities, and sources of funding.
  • Monitor key financial metrics with project reports and financial reviews.
  • Budget for the full cost of any service to be provided.
  • Prepare annual reports and accounts in accordance with legal requirements.

Identify and Mitigate Risk

With a strong risk management process in place, you’ll be able to protect your charity’s assets and resources:

  • Create risk management policies that will identify all possible threats and how to mitigate them.
  • Include risk management statement in annual reports if your charity is above audit threshold (optional if your charity is below audit threshold).
  • Assign supervision of risk policies and monitoring of results to trustees, while staff and volunteers work on the process itself.
  • Identify daily risks and create a framework for mitigation.
  • Review risk management processes regularly.
  • Create a disaster recovery plan so your charity can still provide services to your beneficiaries during worst-case scenarios.

Create Internal Financial Controls

Robust financial controls will help protect your charity assets from misuse and reduce the risk of loss:

  • Identify high-risk areas (e.g. payroll, ordering of goods and services).
  • Draft policies and processes to protect assets and funds, which all staff and volunteers should know.
  • Set up internal controls that include areas of responsibility for everyone.
  • Make sure no one can authorise any payment for themselves.
  • Only use charity’s assets and resources to further the organisation’s aims.
  • Document everyone who handles high-risk systems and make sure they provide regular reports.
  • Use new technology, if possible, to simplify bookkeeping and accounting.

Maintain Charity Reserves

Should there be any unexpected expenses, your charity needs to have a healthy reserve to continue providing services to your beneficiaries:

  • Establish whether the charity needs reserves.
  • Create a policy that will mandate retaining reserves at a certain level.
  • Review policies regularly to make way for any changes.
  • Comply with legal requirements that cover annual reporting of charity’s reserves policy.
  • Identify which reserve funds can’t be used based on donor restrictions.
  • Review investment options for reserve funds.
  • Plan the usage of reserve funds for future projects in advance.

Manage Financial Difficulties and Insolvency

In the event of any unforeseen circumstances that could affect your charity’s services (e.g. economic changes), you as the trustee will be able to weather the financial storm if you:

  • Have the appropriate skills to push through difficult times.
  • Receive regular financial reports so you can identify any threats early on.
  • Act promptly if the threat of insolvency is imminent.
  • Consider merging or working with another charity.
  • Understand insolvency law as it pertains to charities.
  • Recognise that the charity’s first duty is paying off debts in case of liquidation.
  • Inform the Charity Commission in case the charity closes and remove it from the register.

If you need help with your charity’s accounting, we, at Plummer Parsons, offer a specialised type of accountancy advice and audit service to all Not for Profit organisations. Please feel free to get in touch with us for any inquiries.