Charity Finance Management - A Template To Use As A Financial Health Checklist

This charity financial management checklist and template, enable you to assess and respond to finance risk for your risk register and reserves. There is a simplified financial health checklist for small charities

Charity Financial Management System - Core Areas

Charity financial management can be broken down in to three main system areas; strategic, operational, and cultural.

  • Strategic – income, expenditure, reserves, balance sheet, and cashflow. These are all the basic elements of finance which you will need to consider to ensure financial sustainability. 
  • Operational – this is where we look at the mechanics of finance: financial governance, transaction processing, controls, management information and sign off on bids, costing and cost recovery. 
  • Cultural – this is often forgotten about, but looks at whether people think that finance is important or whether finance lacks teeth to get budget-holders to take action. 

Free Charity Financial Management Resources

This charity financial management template gives you a checklist for your charity financial risk register and reserves policy.  You can also health check your charity's financial management online in 30 mins, with access to the huge resource base, including its Funding Finder database and 50+ funder lists.  It takes 2 mins to register and everything is free.  Register Now.

A big thank you to Moore Kingston Smith who co-produced this template and checklist with me.  You can download it in toolkit form from the system.

CHARITY STRATEGIC FINANCIAL MANAGEMENT CHECKLIST

Income, expenditure, reserves, balance sheet, and cashflow. The basic elements you will need to consider to manage risk and ensure financial sustainability. In the long-term, if your expenditure is greater than your income and you can’t support this from your reserves then you are no longer financially sustainable.

To prevent this, and ensure that you have enough cash to trade, you need to keep on top of the basics. Do you understand these and also your business model – how you generate and spend cash? Do you understand your income streams and services sufficiently to understand which make money and which don’t? You are going to need to know this to make decisions about which services and activities to keep going and those potentially to scale back, or stop.

Income

General:

Short-term income heavily impacted.

Longer-term income pipeline uncertain and/or substantially impacted.

Fundraising: Income from fundraising, events, and regular giving significantly affected.

Trusts and Foundations: Income from trusts and foundations at risk, or moving towards those services only focused on Coronavirus.

Grants and Contracts:

Income from grants and contracts disrupted, or cancelled. Payment by results not possible.

Grants not paid on time (affecting cashflow). Funding bid decisions delayed, or core grants potentially at risk.

Loss-making grants or contracts: Subsidising large contracts and grants from unrestricted reserves.

Multi-year funding: These end with no replacement secured yet.

Investments: Income from investments significantly delayed or reduced.

Trading: Income from shops, and other trading significantly impacted (there is also a potential cashflow impact here).

Diversification: Income not diversified adequately - single/limited income streams.

Expenditure

Fluctuation: Increased/decreased costs due to disruption of charity activities, non-delivery by contractors, changes in delivery of services, or changes in service demand.

 

Specifically consider the impact on the main areas of your work, typically:

-        Staff costs (including furloughing)

-        Non-staff costs

Specific large contracts with suppliers or sub-contractors

Fixed Costs: High levels of fixed costs (don’t vary – eg rent) compared to variable costs (vary with level of activity). Limited ability to be flexible in making changes to your cost base.

Cost Reduction: Has the charity considered how best to hold back on costs, through cost reduction, stopping services or furloughing?  Or using free goods and services available to charities?

Financial Reserves

Unrestricted cash reserves well below target to support additional losses, invest in the business, or provide cashflow.

Limited free reserves (freely available and liquid cash reserves).

Balance Sheet

Cash: Limited cash at bank, or financial assets that could be easily liquidated into cash, to pay bills, wages, and other costs.

Cash Flow

General: After mapping out all major cash needs (Salaries, critical supplier payments, HMRC), cash is insufficient to keep the business solvent.

Business Cycle: When looking at your business cycle you are not aware of when cash peaks and troughs.

Overdraft: Bank unlikely to agree overdraft, or loan, and/or no assets to secure loans against.

CHARITY OPERATIONAL FINANCIAL MANAGEMENT CHECKLIST

This is where we look at the mechanics of finance: financial governance, transaction processing, controls, management information and sign off on bids, costing and cost recovery. Each element of the finance function is critical to protecting the assets of the organisation, and reporting on this quickly and in a good enough format to make management decisions.

 

Governance - Financial Risk Management

Reports: Trustees and management not sure of current financial position, coronavirus impact not reflected in finance reports, including current cash position.

Budget Control: Lack of effective budget control, including of any coronavirus costs being incurred.

Forecasts: Trustees and management not aware of future year finance estimates, coronavirus impact not reflected in these.

Business Planning: Robust plans to replace lost income, or hold back on expenditure not yet in place. No contingency plans or scenarios modelled.

No Coronavirus Response Plan: The response plan is not formed or is not sufficient.

Reserves: Management of reserves is insufficient. Unplanned spending of free reserves.

Reserves: Spending restricted money on non-restricted purposes; including bank-rolling activities and cashflow from restricted sources.

Financial Management Information

Timely: Management information not produced on a timely basis to provide relevant and current information.

Up-to-date: Income and expense forecasts not up-to-date and/or prudent.

Collaborative: Management information is not produced using financial and non-financial information that really matters; it is generic data and not owned by budget holders.

Financial Management Controls

Security: Insufficient controls in place to ensure security of cash and where this is paid to (there are growing fraud attempts in the Coronavirus environment).

Going Round Processes: Staff are no longer adhering to process and procedure and are going round these.

Sign off: Effective sign off of paperwork has broken down or is insufficient (this usually occurs because sign off is paper-based and staff are no longer in the same physical location).

Transaction Processing

Input Errors: Inefficient and outdated finance systems meaning duplication of data entry and increased input errors.

Processing Delays: Significant delays in processing now occurring due to Coronavirus and poor systems.

Cost Recovery

Visibility: Trustees and management not aware of what each service truly costs to run, including a fair share of overheads.

Subsidising Grants and Contracts: Unrestricted funding being used to subsidise overheads and grants and contracts without effective sign off.

CHARITY FINANCIAL MANAGEMENT - CULTURAL CHECKLIST

This is often forgotten about, but looks at whether people think that finance is important or whether finance lacks teeth to get budget-holders to take action. It also focuses on finance’s role as a business partner, to help the charity think in difficult times, and not just act as a processing function.

 

Charity Finance Business Partnering

Decisions: Finance are not part of the senior leadership team or involved in any key decision making. Alternatively, finance sees their role as transaction processing, not helping the charity respond.

Management Information: Management information is produced by finance alone and without input from budget holders and other staff

Value: Non-finance staff don’t see the value in finance

Giving Finance Teeth

Accountability: Finance are not given authority to hold your charity's budget and forecast holders to account for variances

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