A brief guide to financial budgeting

For all organisations, the cost-of-living crisis has proven to be a difficult time, but it has been particularly tough for charities, who are relied upon to deliver vital services for their communities. Fundraising can be difficult as financial uncertainty continues under the cost-of-living crisis, while rising energy bills and prices add extra pressure for charities as they try to keep services running.  

 

The Charity Excellence Framework, which produces a monthly forecast on how the cost-of-living crisis is affecting charities, identified both resilience and demand as challenges for the sector in 2023, stating: “The crisis will be both deeper and longer than Covid. This is due primarily to the huge funding gap, made worse by inflation driving costs and eating into the real value of income, the surge in demand and increasing people challenges.”  

 

The Framework also warns of “significant risk of widespread charity insolvencies” in the coming months, with larger charities feeling the pinch as public sector contracts are renegotiated due to budget cuts and public donations waver amid financial hardship in their donor base. Around three quarters of the sector’s income comes from public sector contracts and public donations (25% and 50% respectively); charities rely on both to stay afloat.   

 

In this article, we cover three ways that charities can build their resilience in 2024 to keep both their services and their finances on track.  

 

 

1. Embrace “auditor discomfort”

 

“Auditor discomfort” refers to the instinct that tells financial professionals that something may be awry with their organisation’s funds. According to Better Boards, “auditor discomfort”, though hard to quantify, is one of the first warning signs that all might not be well on the balance sheet, along with a high number of corrections and adjustments at the end of each month and high turnover within the finance team.  

 

Being alert to “auditor discomfort” allows charities to identify potential financial risks before they hit crisis point. Being able to compare reports, such as current assets with expenses, and tracking the expenditure of grant funds ensures that problems are detected early and shows due diligence to investors, grant funds, and board members, allowing all stakeholders to trust that the charity is acting responsibly with its money.  

 

This trust is vital in a cost-of-giving crisis. Donors and funders want to be sure that the money they give to your cause is going to the right place: funding the services you deliver. Charities that familiarise themselves with their financial reports will find it easier to communicate their position – and will be able to engage non-accountants with easy-to-understand financials that demonstrate impact.  

 

 

2. Keep developing your financial skills

 

Knowledge is power. Charity finance professionals are always looking to develop their skills in order to become more confident leaders within their organisation. Finance is closely linked to trust and the more proficient a charity’s financial leadership is, the more confident others can be in its overall governance.  

 

There are lots of courses and resources available to charity finance professionals online. The National Council for Voluntary Organisations is running paid-for online training sessions to help people hone their financial know-how, while the Institute of Chartered Accountants in England and Wales has a dedicated Charity Community page to help the sector keep up-to-date with developments in accounting, examination, regulation, tax, and governance. 

 

Charity finance professionals can also find lots of free information on the Charity Digital website, from articles to podcasts and webinars. The Essential CFO series has information on everything from revisiting your reserves policy to aligning finance with your charity strategy.  

 

Financial software provider Calxa also has a resources section on its website, complete with free webinar recordings, charity-specific e-books, and live web chats, which take place on the third Wednesday each month. The web chat recordings are also available to view online after they take place.  

 

 

3. Budget better

 

As we move towards the end of the financial year, many charities will be reviewing their budget for the next 12 months. One of the free resources Calxa offers is a practical guide to charity budgeting, which provides essential tips to non-profit organisations on how to manage their funds more effectively.  

 

The e-book recommends that charities move away from spreadsheets and build a budgeting team, even temporarily, to ensure that multiple people have oversight over it, making it easier to spot any mistakes. 

 

“Budgets are inherently complex and go through several revisions. While spreadsheets can be fantastic for simple operations, the more complex they become the greater the risk of something going wrong,” the e-book explains.  

 

It adds: “The downside of their great flexibility is that they give you unlimited scope to make mistakes. And the best of us make mistakes from time to time – mistakes that can be very hard to identify and track down in a spreadsheet.” 

 

The right software can help make things smoother. The Charity Digital Exchange offers discounted software solutions to charities, including a premier subscription to Calxa, which can help charities track programme funding, make their finances clearer, and improve reporting processes. You can also check out the practical guide to budgeting below.