Insights
We explore the benefits of planning ahead for financial stability, sharing key actions charities can take to get started when financial futureproofing
Charities are facing huge financial challenges: an increase in service demand, an uncertain economic landscape, and massive rises in operating costs.
A recent survey found that 67% of UK charity senior executives say the financial health of their organisation has deteriorated since the cost-of-living crisis started, with 13% saying it has deteriorated dramatically. While in Scotland, seven in ten charities cite financial challenges as their biggest challenge and a third of organisations report having made use of their financial reserves.
More hopeful research from Kreston UK found that almost half of charities believe their financial outlook for 2024 is positive – however that’s alongside 83% of charities experiencing pressures on their income streams.
Whatever the size of your charity, it’s incredibly important to futureproof your finances –
and it’s possible to do so with minimal resources. Plan and be proactive and you can build your charity’s resilience, longevity and agility.
Financial futureproofing will help your charity to become more resilient to unexpected challenges – which is ever-more important in our unpredictable economy. That might come from having robust financial processes and management tools in place, which will allow you to have a firm grasp on your incomings and outgoings and flag up any financial issues early on. A clear expenses policy will also help to control outgoings.
It could also mean building up an emergency fund, if at all possible. This money is to be set aside and not used under any circumstances unless there’s a legitimate emergency. Having funds set aside for financial shocks can help give you peace of mind, and if you already have one, build that pot by making sure it’s earning the most amount of interest possible.
For your charity to flourish in years to come, you’ll need to anticipate future changes, challenges and trends – as far as is possible. Then you’ll need to build a strategy that maximises the chance of financial sustainability. That’s likely to include embedding robust financial planning and ensuring you have effective digital tools in place, which allow you to quickly and thoroughly assess your current financial position.
To make the most of your funds, you’ll also need to regularly review your financial strategy. As the Charities Aid Foundation explains, that will include monitoring your accounts to make sure they still suit your needs – interest rates change, as can your charity’s situation. They also point out that if you opened an account with a special or introductory offer, review it before that rate comes to an end to give you plenty of time if you then want to switch accounts.
The pandemic showed us that the world as we know it can change in an instant. Being agile and responsive to whatever situation we find ourselves in, can increase our chances of weathering any storm. That’s where real-time data comes in. In a rapidly-changing situation, it’s hugely beneficial to have instant access to the very latest financial information. This helps leaders to make effective, well-informed decisions – which is crucial when facing a fast-moving, crisis situation.
This includes bookkeeping, invoicing and accounts receivable, accounts payable, tax compliance and reporting, payroll and expenses. This can help to cut down mundane tasks and human error, as well as giving your finances greater transparency (all important for supporter trust and ensuring future donations). Having effective tech in place, may also help to attract great candidates when you next need to recruitment to your finance team.
While many financial management systems already use AI to carry out regular processes, you might want to also explore how predictive analytics, (based on huge amounts of data) can help you to better understand your finances, anticipate future trends and make proactive decisions. As described in Forbes Magazine, AI (specifically ChatGPT) can also suggest the most suitable giving options for donors – whether that’s one-off or recurring donations – meaning communications can be more tailored.
It’s dangerous to rely on one source of income. Diversifying your income (ensuring your income comes from a variety of sources) is important in increasing your charity’s long-term financial stability.
This is particularly important in the present unpredictable financial climate and the cost of giving crisis (though the spring Donor Pulse found that this is slowly easing). A recent survey found 67% of charities are exploring options to diversify income streams: that might mean launching a new fundraising event or applying for different grants.
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