How to start the financial year off right

Now that the HMRC Self-Assessment season is over, it’s time to turn over a new leaf and prepare for the upcoming financial year. We offer some tips and tricks to keep your finances in order, examining what works and what does not work.

 

 

Create a realistic budget

 

Scrutinising income and expenses tops the list of ways to start the new year. The NCVO offers best practices for budgeting. They suggest a thought process that includes the following questions:

• What are the charity plans?
• What are the resources?
• How much will this cost?
• Where will the funds come from?
• Can we afford this?

These questions help frame budgets, and whether or not charities can tackle wish lists. Remember, stay away from fanciful thinking at that stage.

 

 

Examine your cashflow forecast

 

Building a cashflow forecast on a monthly basis helps charity finance managers anticipate upcoming income and bills. The monthly breakdowns give clarity on what each period looks like, so that the whole year becomes more manageable.

 

BDO, the accountancy firm, notes how important cashflow forecasting is to charities and non-profits. They acknowledge that one of the main benefits to this process is building organisational resilience through testing.

 

They say: “Scenarios enable charities to consider uncertain outcomes and prepare for future events, enabling them to adapt quicker and in a more measured way.”

 

 

Use digital to plan accurately

 

Using government approved software eliminates the hassle of ensuring that tax forms are accepted by the HMRC. Software caters to charities of all sizes.

 

For small, less complex organisations, Zoho manages finances, people, and CRM data. Xero, the small business leader, also gets credit. The platform’s easy-to-use financial system means even tech beginners can produce budgets, balance sheets, cash flows, and accounts.

 

The added benefit of digital systems is that they reduce the propensity for errors when compared with manual inputs. Financial management systems typically pull raw data directly from bank accounts, so there’s no need for data entry. 

 

 

Review regularly

 

While many charities are not obligated to produce quarterly financial reports, getting into the habit unofficially helps finance managers stay on track. Reporting to senior leaders ensures that decision-makers have the information they need to assess and act swiftly.    

 

 

Understand how you’ll be squeezed

 

This upcoming financial year looks a bit different than prior ones. Headlining across the UK media are reports of rising fuel and living costs, translating into higher costs to businesses and other organisations. For charities, the impact may be felt in reduced income or rising costs.

 

Top tip here is to look at expense line items, and intensely evaluate whether those costs are justified. Many charities have already found that with hybrid working, there are plenty of opportunities to save.

 

 

Gather market intelligence

 

Learning more about charity finances and educating staff is another great way to kick-start the new financial year. Building up knowledge around what factors impact funding prepares teams for any future booms or busts.

 

At Charity Digital, we’ve taken a look at reports in the past, and summarised both the state of charity finance management and the health of the sector.

 

Aside from financials, charities may also want to consider gathering market intelligence from their own specialisations. Speaking with donors and beneficiaries may help to assess what the upcoming year will look like.

 

 

Perform a quick health check

 

A quick, tick-box approach to charity finances benefits time-poor managers. Doing a financial health check on a regular basis assesses whether or not teams are performing as they should.

 

At Charity Digital, we’re supporting smaller charities by providing a free checklist.

 

 

Plan for extraordinary expenses

 

Nobody wants a rainy day to actually come, but plans need to be in place. Provisioning for extraordinary expenses is a must. In accounting terms, this could be in the form of ensuring that cash and equivalents remain at healthy levels. From a policy perspective make sure there are procedures in place when deciding whether to issue an emergency fundraising call.

 

 

Carve out time for training

 

Starting the financial year off right means committing to upskilling. For charity managers, online courses are available.  The NCVO regularly offers digital courses on the basics of charity finances.

 

The Charity Finance Group also provides online training for those looking to understand what finance looks like in a post-COVID-19 world.

 

 

Know your tax relief

 

Charities benefit from many types of government tax relief. In general, they do not pay tax on income used for charity purposes, but there are other types of relief. For a full list of details, get familiar with the HMRC’s tax framework.

 

For financially savvy charities, it may be worth consulting with expert lawyers on how charitable structures can maximise tax breaks.