A recent study performed by the Charity Excellence Framework has revealed that frontline public service funding is down by around £1 billion this year.
Whilst the Chancellor, Jeremy Hunt, pledged greater spending on English and Welsh charities in 2023, the rate of inflation has meant that many are not seeing the benefits.
Almost one-third of respondents to the Charity Excellence Framework study said that their charities were facing significant financial challenges.
Now, more than ever, robust financial planning is crucial to the survival of charitable organisations.
From an accounting standpoint, several strategies can be employed to help charities maintain financial stability.
- Diversification of income streams: Relying solely on a single avenue, such as Government grants or individual donations, can be risky. A mix of corporate sponsorships, grants, and fundraising events can offer a more stable financial footing.
- Maintaining a robust reserve fund: Having a strong reserve fund is essential for weathering financial storms. This fund acts as a safety net, enabling charities to continue operations even when funding is low. The size of this reserve should be calculated based on a thorough risk assessment, which considers both fixed and variable costs.
- Quality budgeting: A well-planned budget is a cornerstone of financial stability. It should outline anticipated income and expenditure for the fiscal year. Regularly comparing the budget against actual figures will highlight any variances, offering an opportunity for timely corrective action.
- Stringent cost control: Routine audits can pinpoint areas of inefficiency or wastage, allowing for necessary adjustments to your expenditure. Simple measures like negotiating better rates with suppliers or utilising volunteers can also make a significant impact on the bottom line.
- Transparency and accountability: Maintaining high levels of transparency and accountability is vital to all forms of charitable activity. Accurate financial reporting not only meets regulatory requirements but also fosters trust among donors, thereby encouraging future contributions.
Adopting a multi-faceted approach that encompasses income diversification, robust reserve management, careful budgeting, strict cost control, and transparent reporting can significantly mitigate the risks associated with fluctuating funding levels.
A reliance on Government funding is no longer a firm financial strategy considering current inflation rates.
Speaking to an accountant with expertise in charity finances is another valuable strategy for ensuring long-term growth and sustainable operations.
Please contact one of our experts for more information on charity financial planning and funding opportunities.