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Research shows that donors care about the finances of the charities they support, as much as their impact. Here’s how charities can use that to their advantage
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The cost-of-living crisis, a phrase coined all the way back in 2013 but peaking in popularity during 2022, is expected to continue well into 2023, according to forecasts.
The Charity Excellence Framework, which produces a monthly report about the impact of the cost-of-living crisis on the UK charity sector, warned that 2023 was likely to bring a high risk of charity insolvencies, as demand for their services battled with pressures on funding. Times of financial uncertainty can make it difficult to fundraise, while external contracts and investment can also be harder to come by as organisations seek to tighten their belts in response to fiscal constraints.
But there is also hope. The Bank of England expects inflation to fall in mid-2023, with the price of goods and services slowing down in response. The Charity Excellence Framework, likewise, points to the possibility of long-term recovery in 2024, with sector resilience driven by the potential upturn in economic conditions.
For charities, it is a matter of navigating the hardship and making it through the other side. The charity sector has proven its ability to adapt in difficult circumstances, most recently during the pandemic. In September 2020, one in seven organisations thought they would not see the year through. A year later, the outlook was much brighter, with 95% of charities expecting their organisation to continue operating.
Charities are resilient. But building that resilience requires proactivity, a consistent commitment to sustainability, and financial expertise. It is vital that charities keep a close eye on their finances in order to prepare for future hardship early; the more prepared they are, the easier it is for them to adapt when needed.
In this article, we share three key survival tips for charity finance professionals to keep in mind as they steer through unchartered waters and keep our organisations afloat.
“Good financial stewardship plays a critical role in maintaining funding relationships and attracting new donors”, according to The Nonprofit Finance Team Survival Guide from Sage Intacct. “Finance teams face pressure to provide...better visibility into both financial metrics and outcome metrics for the board, executives, donors, and government funders.”
Being transparent about your finances – even, if not especially, during times of financial difficulty – increases trust, leading to more donations and more funding in the future. Transparency invites people into your organisation and how it works. Importantly, it can also increase awareness of how much you need to be able to continue your good work in a crisis.
Essentially, being open about your finances is a great way of building trust with your partners and encouraging them to work with you. Grant funds, for example, want to see evidence that your charity is responsible with its money – the slightest financial omission in a funding application can look, at best, sloppy and, at worst, sinister.
It’s not just funders that care about your finances either – donors, beneficiaries, journalists, and even other charities want to know that the money you raise is being used to deliver the services it promises. It forms part of your contract with them – that you will use your resources to support your communities in exchange for their support and collaboration.
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“When you have an easy-to-understand and efficient chart of accounts structure, the information that flows from it will be more useful,” says The Nonprofit Finance Team Survival Guide. “Your chart of accounts forms the framework for storing all your financial information and transactions, with an impact on everything from data entry to financial reporting.”
With so many stakeholders to update on your financial position, from project partners to investors, it is helpful if charity finance professionals are able to access the different information each party needs easily. Too many number sheets and combinations can make understanding what’s going on more complex than it needs to be.
A good chart of accounts (COA) is all about structure – structuring assets, liabilities, funds, incomes, costs, and more. A charity’s COA should allow you to tag and sort transactions so charity finance professionals can easily customise their reports according to who they’re reporting to. It demonstrates diligence and helps charities stay on top of their finances, with no nasty surprises occurring later down the line.
Charities should also review their COAs annually as priorities change. With the new financial year approaching in April, the time for reviewing is now.
Not everybody understands finance. It can be difficult to translate a charity’s finances into a way that makes people, including trustees and board members, listen and pay attention.
As we mentioned above, talking about your finances openly is not only necessary, but beneficial. But doing so with jargon and numbers can make matters seem overly complicated and cause the people who need to care about your finances to switch off.
Charities should be able to talk about their finances simply and quickly. Trustees are notoriously time-poor and it is particularly important to be able to update them efficiently if they meet only certain times throughout the year.
Storytelling can be really helpful for helping others to digest your financial position. The story should be accompanied with visual aids, such as infographics and graphs – use the dashboards from your financial software to demonstrate trajectories and give the full picture of your projected destination.
Being able to monitor multiple income streams in one place will also help people digest your finances more easily, informing their organisational priorities and decision-making.
Click below to download The Nonprofit Finance Team Survival Guide from Sage Intacct
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