Financial stability and acumen will help underpin being effective, Neil Poynton from CAF says.
There has been and will always be articles written regarding the effectiveness of a charity. Many will discuss the importance of mission and measuring impact for good reasons. However like anything in life, without financial resources and managing them efficiently, achieving goals becomes extremely difficult.
So let’s take a leap of faith and assume finances are healthy. Now the challenge is to manage them effectively. Here are 4 points to consider.
1. A starting point
Ensure your financial strategy marries with the objectives of your charity, considering longevity and the expectations of your donor base. Are you here for the short or long term? Understand your Reserves Policy and then critically manage and review this policy on a regular basis.
2. Think beyond the end of the week
Developing a strong financial backbone will help attract donors, be it grant makers, high net worth individuals or corporates. After all, who knowingly gives their money to financially unsound recipients? Additional stakeholders such as bankers will consider financial stability equally important as your mission.
Structure your monies and assets to take into consideration short, medium and long term requirements. Day to day cashflow monitoring is as vital as investing for the long term returns.
3. Manage risk and diversify
Diversify your assets and look to take advantage of the Financial Services Compensation Scheme, where appropriate. Apportion funds to maximise deposit accounts and give careful consideration to the pros and cons of longer term market investments. Remember that there is a very real risk of cash being eroded by inflation, particularly during these uncertain times for base rate.
Look at every opportunity to “sweat” your assets. Put simply, look to get as much out of what you already have. If your short term cash is earning next to nothing, seek out the best rate of return you can find whilst remaining within your risk tolerance strategy.
4. Never rest on your laurels
This is not a one-stop shop. Without constant management and review, strategies become outdated and inappropriate. Remember to consider the “what ifs”. Can your financial model cope with a change in base rate (think deposits but also lending commitments), non renewal of contracts or reduction in expected funding streams? If you are changing your goals, ensure your financial strategy is adjusted accordingly.
And of course, never forget the overriding importance of retaining strict internal controls. No amount of good investment choices will protect against ineffective controls.
Neil Poynton is head of charities at Charities Aid Foundation
Civil Society wishes to thank Charities Aid Foundation for its support with this article