FinOps Partners

8 Financial Management Tips for Charities

WAs the head of a charity, you regularly focus on three main tasks: to draw funds toward your organisation, ensure they are put to good work, and prevent donor loss. This doesn’t leave much time for financial management. Yet, we all know that having a solid financial strategy is vital, whether referring to a charity, a SME, or a corporation.

Being able to stay financially resilient, even when recession hits, requires strong strategic planning for charities. From leveraging technology to make data analysis more accessible to producing clearer financial reports for donors and trustees, each step builds a stronger financial foundation.

But where do you start when creating a financial management plan for your charity? Here are 8 tips to set you on the right path!

1. Use Scenario Budgeting

A budget helps charities understand the basics: where the funds are coming from and where they are going. However, there’s no guarantee everything will go as planned. It’s not uncommon for not-for-profits to overestimate the success of a fundraising campaign or to underestimate the costs of an investment.

Many events can take place during the budgeting period – key employees may resign, funds may be delayed, miscommunication may lead to lost opportunities, and the list keeps going.

Moreover, you may deal with elements outside your organisation, such as economic downturns, natural disasters, or increased competition.

Charity budgeting is tricky because you need to plan for every one of these. This is in fact called scenario budgeting, and it involves creating several versions of your budget to cover potential critical situations.

For instance, you can create a worst-case scenario and a best-case scenario and compare them to your original budget. Are there any weak points? You’ve managed to discover them before the real crisis strikes.

2. Don’t Rely on a Single Revenue Stream

Many organisations learned the hard way not to rely on a single income stream during the COVID-19 pandemic when in-person fundraising was restricted. Charities that had already set up online or telephone donation systems were able to adapt, whilst those unprepared faced significant challenges to survive.

In 2024, we are seeing an increase in the number of not-for-profits looking to diversify their revenue stream. According to a 2024 Kreston UK report, 67% of charities are actively searching for new income opportunities that can help them stay solvent during crises.

When preparing a diversified funding model, we recommend including the following categories of charity revenue:

• Grants – They can be project, capital, core funding, or research grants. These funds are often granted to help charities manage their operational and capital costs.
• Individual donations – Small or large, donations are always welcomed and represent an important income stream for charities.
• Corporate donations – Corporations can contribute to a charity’s income through sponsorships, volunteer grants, or major gifts.
• Investments – As a charity, you can invest in cryptocurrency, stocks and shares, endowments, and property.
• Charity income – Lastly, you can make a profit by selling merchandise or offering your services for a fee.

3. Keep Track of Revenue by Fund

The public trusts charities that are financially transparent, says the Charity Commission for England and Wales. You need a way to report on your donation management, grant management, and resource allocation that shows you are responsible and open about your transactions. It’s time to discuss fund accounting.

Fund accounting relies on the separation of funds, which helps track each income source separately. There are two main benefits that come with using this strategy:

1. You can create personalised reports for your donors, allowing them to understand how each fund is performing, and how well it aligns with your mission and goals.
2. You can analyse data from each fund to identify the strengths and weaknesses in your financial management practices.

Tracking your revenue by fund is vital for preserving public trust. However, it is not an easy job, especially when the charity lacks a dedicated accounting department. In such cases, outsourcing to a service like FinOps Partners can be an effective solution for ensuring proper fund management and compliance.

4. Implement an Expense Management System

Often, when a charity faces financial hurdles, the main cause is poor expense management. If you don’t have a plan your team can follow when submitting expenses or receiving approval, you are not only wasting time but also risking disorganised audits and compliance issues.

By streamlining your expense management system, you can unlock more human resources and speed up invoice and receipt processing. You will soon find yourself paying all your suppliers and collaborators on time and avoiding late fees.

However, moving faster through the papers isn’t the only advantage of using a professional expense management service. If you have a clear way of tracking your documents, it’s easier to avoid errors and allows you to create transparent reports for your donors.

5. Build Customised Financial Reporting

As we have already mentioned, one of the best donor retention strategies is showing compliance and stewardship. How are you managing funds? Are you fulfilling your mission? Is the community benefiting from your efforts? These are legitimate questions you’ll need to answer in your financial reports.

Most donors appreciate speaking their language, so it’s not enough to rely on a set of generic financial KPIs. Instead, choose the most representative financial KPIs for charities and include clear explanations that can help donors understand where you are standing.

Depending on your stakeholders, you may need to create more than one financial report template. Whilst donors expect to learn mostly about how funds have been used to achieve tangible results, for your board members you should produce more detailed reports that can help them make strategic decisions for the charity.

6. Use Software to Automate Your Financial Tasks

Task automation is the trend today, and it does bring lots of benefits for charities struggling to manage their financial operations. Investing in bookkeeping software reduces the risk of human error and helps speed up daily tasks such as processing payments and recording receipts.

A Digital Skills Charity Report from 2024 showed that 48% of charities need external aid to improve their storytelling with data, whilst 45% struggle to understand the data they collect.

Advanced programs can help you calculate statistics and create charts that can help you understand how each grant or program is performing. Since everything is online, you can easily generate a report and send it directly to your stakeholders.

7. Keep a Reserve Fund

For moments of uncertainty, it’s a good idea to put some money aside. An emergency fund can help you survive an economic crisis, manage periods when you have trouble attracting donors, or seize the right moment for an investment.

Having an operating reserve is also good news for your stakeholders, who can rest assured that you can pull through an unexpected event. Just make sure to let them know about it in your reports.

If you are wondering how big your reserve should be, there is no formula that can fit all situations. Many charities multiply their monthly operating expenses by six, and that’s how much they save. However, depending on the size of your charity and your profile, you may need more.

The good news is that you can raise money for your emergency fund the same way you do it for your other expenses. In addition to saving a portion of your annual surplus, consider applying for a grant or launching a dedicated campaign to build your reserve.

8. Build a Strong Relationship with Your Auditor

Your auditor knows best what you need to do to have your audits working smoothly, and you can leverage that to your advantage. Instead of meeting them only when the audit is due, keep in touch and ask for advice and instructions.

At FinOps Partners, we believe in establishing a strong relationship with our clients. We offer you the best tools to improve financial management for your charity, and we keep communication open, making it easy for you to reach out every time something seems unclear. Our auditors have extended experience and expertise and can help you identify financial risks in time and build a more resilient financial strategy for your charity.