This practical guide walks you through the necessary steps to getting your trustees to take an active role in the financial management of your organisation
The Charity Commission lists six responsibilities of trustees:
The last of these is overtly about finance and includes the need to produce and file statutory accounts. The bulk of this responsibility typically falls to the treasurer (working with the finance manager or other staff as appropriate). However, the other trustees are still required to sign off on accounts and many of the other five responsibilities require an adequate grasp of finance.
For example, managing your organisation’s resources responsibly requires an understanding of the finances and their role in supporting the organisation in carrying out its purpose. Similarly, if a trustee is to act with reasonable care and skill, they need to understand their organisation’s finances too.
However, all too often trustees find the finances of their organisation hard to engage with, which can compromise their role as a trustee and make it hard for the board to function effectively. Strategic and operational discussions in the absence of a sound financial understanding can be ineffective and potentially even damaging to the future of the organisation. It can also make the role of the treasurer difficult as they are required to shoulder a disproportionate responsibility.
In this context, it is important for all trustees to deepen their understanding of the finances of their organisation.
This short guide outlines a series of steps to help staff acquaint trustees with their organisation’s finances. We’d recommend a briefing session for all new trustees (and those requiring an update) supported with appropriate presentation materials and relating key financial concepts to the specifics of the organisation.
Establish the current level of financial knowledge and understanding of the trustee(s) and modify the following content appropriately (points 2 – 9). Depending on the level of knowledge, it may be appropriate to split into more than one session, e.g., one session to focus on finance basics as per point 2, and a further session to discuss the specific areas which relate to their organisation as per points 3-9
Explain key terminology:
Statement of Financial Activity (SoFA) or Receipts and Payments Account
Trustees might also be referred to our short video on “The fundamentals of finance for non-profit organisations”.
Provide an explanation for every significant income stream:
Explain all other cost categories (fundraising and marketing costs, overheads etc.)
Provide details of any major contracts not explained previously (including property leases)
Explain balance sheet terminology (also known as statement of financial position)
Walk-through the organisation’s balance sheet covering each of the categories outlined in step 6.
Explain how the management accounts map to the statutory accounts.
Outline any other points of financial significance to the organisation.
View more charity finance content at the Sage Nonprofit Success Hub.