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Not-for-profit FDs must adopt new approach

WITHOUT DOUBT the third sector is facing tough times and challenges, and the predicted upturn seems a long way off as the news gloomily moots the idea of another recession. Money is at the heart of the problem: donation income is falling, government funding is limited and hard to secure, and there are increased calls on management within the sector to become more transparent and accountable to the public, to donors and to government bodies alike.

Charities and not-for-profit organisations are now often required to produce detailed reports showing how and where funds are allocated. These are requirements with which many struggle. There are, however, steps that the proactive FD within the third sector can take to help prepare for the future with confidence.

Third-sector organisations need to adopt a more commercial and profit-making approach. They must see themselves as businesses competing for investment and ongoing returns. If they are to increase donation income, secure much-needed funding, and become more competitive, now is the time to think about operational and financial performance and consider what steps need to be taken.

Our experience shows us that many third-sector organisations struggle with effective planning, and only very few have a single version of their numbers and operational performance. Many rely on a number of systems and spend significant amounts of time inputting, extracting and re-working financial and operational data between different spreadsheets to produce reports that meet stakeholder expectations.

Not only does this take up the time of finance professionals, who could be better employed analysing and reporting on what the numbers actually say about performance – it is also susceptible to error. A lack of timeliness and accuracy affects negatively the organisation’s ability to meet stakeholder demands for transparency and accountability. In turn, a lack of transparency and accountability has a detrimental effect on an organisation’s credibility as a charitable entity and, ultimately, on donations and funding.

Having strong financial planning mechanisms in place allows the FD to accurately pinpoint income streams, and it offers increased visibility and clarity on expected income and the allocation of funding. Organisations are then able to focus the right resources in the right areas, provide both current and future forecasts to move money around quickly to best meet project needs, and know commitments against budgets to avoid overspends.

While the future is unknown and unpredictable, having effective financial and business information at your fingertips is at the heart of the successful organisation and plays a pivotal role in future-proofing any business. The third sector is no different.

Anwen Robinson is UK managing director for UNIT4

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