Balancing investment, spend, and operations is a tough matter for financial teams. This is especially true given the cost-of-living crisis, staff churn, and unpredictable donation patterns.
Good financial decision-making does require a bit of finessing. Here, we outline some of the best tips, tricks, and sound advice.
Save for a rainy day
Our top piece of advice is to plan for unexpected costs. Unrestricted income, the pot that is not earmarked for special projects, should provide that safety net. You’ll want to ensure that you have at least several months in advance of funds for operations.
Get onto digital financial platforms
One of the best investments is in a financial management system.
Such platforms can help finesse financial decision-making because controllers get to see all the details. Our suggestion here is to analyse your aged receivables and payables.
You can see how much of a ‘gap’ time period exists between when you need to pay suppliers and when costs are due. Use that gap to your advantage.
Create a budget
One of the best ways to fine-tune finances is to create a budget.
While most controllers know this is invaluable at the organisational level, charity project managers should also take note. Design a budget for a specific project.
Start by assigning resources: staff hours, expense items, and expected outputs. If things start to change, the budget can help weigh out options.
Know your metrics
Making financial decisions means understanding how charity metrics are evaluated.
Go over how services and programmes are measured. The most common ones include operational and fundraising efficiency and average revenue by donor. Once you’re able to bottom out how outcome metrics work, you can gauge performance versus decision-making.
Calculate the ROI
Return on investment helps quantify whether spending is worth it. The calculation looks at how much spend is required to generate income and can be used to compare options.
Do your homework
Another technique to compare spend and investment is to look at comparable options. Working with freelancers puts comparisons into perspective.
By taking quotes from sites like Fiver, Work for Impact, and Blume, managers get a sense of what things cost. Blume lets freelancers advertise on a per hour basis.
Employers are able to compare ratings, wage, and work profiles.
Put out a tender
For larger jobs, putting out a tender can help finesse financial decision-making. Start by advertising on the website or social media what’s required. Highlight the project’s purpose and how bidders can demonstrate their ability to deliver the best result.
Set a deadline for submission. Then, sit back and wait for the best proposals to come. From a financial perspective, managers will be able to price for the entire scope of work.
Automate financial decisions
Automating financial decisions empowers controllers. Once fully onboarded, automating expenses, reconciliations, and forecasting means greater transparency.
The other benefit of automation is it makes a controller’s job less mundane. They are freed from inputting numbers and have more time to think critically.
Engage with the board
When confronted with major financial decisions, engaging with the board is crucial.
Here, finesse is what it is all about. By engaging early and often with members, big choices can get the thumbs-up before approvals take place. Speaking with board members can also avoid mishaps – feel out what risks they are willing to take when making decisions.
Understand charity KPIs
Mastering key performance indicators can help assert impact and verify decision-making. For income, KPIs include donor retention rate, growth rate, and average donation size. These KPIs may support extra spend or paring back.
They are often found on annual reports. Carbon calculations, number of beneficiaries supported, service satisfaction, and the growth in the number of units served indicate how operations are faring given a decision.
Practice cashflow forecasting
Brilliant financial analysts use cashflow forecasting to anticipate how income and cash-on-hand changes.
The most important element of cashflow forecasting is reviewing it against actual performance before projecting. You’ll want to pull out real percentage changes across income and costs.
Look at overall macro-economic trends. Add in inflation costs and buffers for the future. For income, small growth factors make sense – this could be due to additional fundraising events or investments.
Build in pro-forma events in cashflow forecasting
Pro-forma cashflow looks at ‘what happens if’ something occurs. This means factoring an event into the cash flow programme. For example, there could be a scenario where operations are due to invest in a large project.
To gauge this effect, plug in the spend and see what happens to the forecast.
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