The charity sector faces a hole in its finances of a whopping £4.6bn by 2018/19, according to a 2015 report from the National Council for Voluntary Organisations (NCVO). Using qualitative and quantitative data from organisations including the Charity Finance Group and Small Charities Coalition, as well as direct evidence from 106 respondents, the report makes sobering reading for small and medium sized charities in the coming years.
There couldn’t be a better time to get into some good habits and prepare for any challenges that could lie ahead, so I want to explore some fundamental areas which charities could and should be looking at in 2016.
Understand your charity’s operating model
It’s surprising just how many charities haven’t got a clear and comprehensive understanding of how dependent their charity is on individual sources of income, or how reliable those sources of income will be in the coming years. Sitting down with your trustees to map out your operating model, including your organisation’s objectives is a very worthwhile activity. Not only can your board coalesce around a clear strategy with clear and stated aims, but you can also identify areas of potential weakness in your operating model, that you need to keep a close eye on.
Think about how your market will change in the future
It’s impossible to predict the future but you can certainly make some informed assumptions about the market your charity operates in. Understanding upcoming legislation, government policy and scrutinising the Chancellor’s budget every year will help you go some way in understanding future changes and trends so you can prepare for them in good time. Keep an eye on funding at the national and local levels and whether it’s likely to be cut at any point in the future (even if it’s been cut already).
Keep on top of new HMRC rules
This is a no-brainer, but with so much going on, it can be difficult for charities to mitigate or adapt their processes for impending changes to HMRC rules. A good example here is the new wording for Gift Aid Declarations that, as of this financial year, charities now need to adhere to. If you haven’t changed this yet, then it’s imperative you do, as any declarations using the old wording are now invalid.
Utilise and develop your existing skill base
Whether it’s a volunteer, trustee or a paid member of staff, you should always be looking to take advantage of the skills your charity has at its disposal. Make it a mandatory process to get up-to-date information on the skills and work experience of all your volunteers, as well as your staff and trustees. If you’re missing any specific skillset then try inviting people with those skills to become a trustee of your charity.
Finance training is essential to running a charity and even a small degree of financial knowledge can go a long way. A great resource is the Community Accounting service, which offers a national network of support and affordable training on things like tax, auto-enrolment and payroll.
Consider outsourcing
There are many areas of day-to-day financial management and accounting that can be outsourced very cost effectively. Payroll is a good example of this. Not only is it an essential day-to-day function for any charity with paid employees, there are a ton of rules and regulations involved in its administration. Smaller charities with just a single financial administrator can be vulnerable if that individual is suddenly taken ill and could even face fines from HMRC for non-compliance or late submissions.
By Nick Brown.
Nick Brown has been a chartered accountant since 1983 and a partner at Plummer Parsons since 1990, where he is also Head of Charity Audits and Payroll. As well as being a member of the Information Technology Faculty of the Institute of Chartered Accountants, Nick is also an expert on the charity and not for profit sector, holding a diploma in Charity Accounting.