The future of financial leadership

In 2012, Professor Paul Palmer, Director of the Centre for Charity Excellence, suggested that Financial Directors were perfectly placed to lead their charities as Chief Executives, given their wealth of experience. But while those in the private sector were able to make the leap, those in the charity sector were finding it more difficult. 

Ten years later, the leadership role that financial employees can play in their charities is still just as clear, and perhaps even more valuable. Charity financials have been under greater scrutiny than ever, from both internal and external audiences – all charity stakeholders want to be sure that the charity they support is acting responsibly in fiscal matters.  

This scrutiny was compounded for those who felt the financial pinch as a result of COVID-19. More than 60% of organisations experienced a loss of income during 2020, according to the Charity Commission, while the number of charities that went insolvent in this period increased by a third compared to the previous year (though the Commission notes that this number was still surprisingly low given the tumult of the pandemic).  

In 2020, Simon Hopkins, Director of Resources at Blind Veterans UK, told Charity Financials that “If ever there was a need for finance leaders who are actively working with colleagues to shape strategy and not just reacting to it, it’s now.” 

He added: “Every finance leader needs to think about how they are positioned within the dynamic and culture of their charity. If you are not central, or if you are consulted as an afterthought, then you need to change that. It’s not about us hogging the spotlight; rather it is about the underlying viability of the charities we work for and love.” 

Indeed, the financial uncertainty of 2020 does not seem set to abate.  In 2021, the UK has experienced a cost of living crisis, while the Bank of England has warned of a recession as inflation continues to rise.  

Financial leadership has never been more vital as charities navigate these unchartered waters. As the Charity Commission advises, it is important that charities can act quickly and take expert advice early on to deal with changing finances and ensure they can continue their work in the communities they serve. 

That’s where Financial Leadership 3.0 comes in. 

What is Financial Leadership 3.0? 

According Sage Intacct, Financial Leadership 3.0 “is all about predicting the future. 3.0 is telling you about the trends. It’s forward-looking as opposed to in the moment”. 

Essentially, it is all about being data-driven. By looking at data and analysing it, charities can predict where they might be in the future based on the behaviour of their audiences in the past. While the previous two stages of financial leadership may have been about looking backwards or only applying data reactively to situations in the present, 3.0 is more advanced. 

Financial leaders at this all important third stage should be making use of Artificial Intelligence to model what the future might look like for their charity. They should automate basic tasks to free up more time to strategise and identify their next steps.  

As the The Rise of the Data-Driven Nonprofit Finance Leader eBook points out, time is a scarce resource for any charity worker and finance leaders are no different. Currently, according to the e-book, three quarters of their time working is spent on routine accounting rather than defining the overall strategy and direction of their charity.  

Additionally, nearly two thirds of financial leaders in nonprofits (64%) admit their finance function is not proactive enough in using data and analytics to identify, prioritise, and address critical issues. 

In order to become a Financial Leader, the eBook  also suggests that three factors need to be addressed: people, processes, and technology. 

• • People 

    Charity finance teams should work to be creative, curious, and analytical. They should monitor data, identify trends and patterns, and use them to discover ways of achieving success for the organisation. 

• • Processes

    Processes need to be efficient and made for the teams who are using them. They should be reviewed regularly to iron out areas of friction. 

• • Technology

Technology enables people and processes to thrive. It also helps financial teams become data-driven, through three key elements: automated operations, multi-dimensional analysis of metrics, and real-time data synchronised with other areas of the organisation.  

Faster reporting and real-time analytics means being able to make proactive, rather than solely reactive, decisions. Instead of fighting fires, the data-driven finance leader can prevent them from breaking out in the first place. That’s what it means to achieve Financial Leadership 3.0.