Building financial resilience: Practical steps for small charities

10 practical actions to strengthen your financial resilience

Based on our work with hundreds of organisations, these steps offer practical, achievable ways to improve financial management and resilience:

1. Forecast your cash flow

Cash is king, especially in these uncertain times.  Maintaining a cashflow forecast means that you can see the future in financial terms.  Updating your cashflow every month lets you see how long you have to raise more funds – your ‘fundraising window’ - and gives you the chance to make cost-cutting decisions in good time.  A ‘base case’ cashflow which shows what will happen if you don’t raise any more money, but just use secured funds.  This can be overlaid with different scenarios showing funds you are confident of raising, and those of which you are less confident – different scenarios.  You must show your reserves policy levels on the cashflow graph – particularly your minimum reserve level, so you know when that might be breached.  Forecast as far ahead as is meaningful to you – not just to year end.  A rolling 12-18 month forecast is helpful.

Resources: 

Cashflow Forecasting during a cost of living crisis

Controlling cashflow at a time of economic uncertainty

2. Forecast your income

To help with your cashflow forecast, it’s useful to forecast your income carefully.  You can use a ‘red, amber, green’ system to classify income with different probabilities of success.  Keep track of decision dates for different funding applications or activities, and use these forecasts to develop ‘red, amber, green’ income scenarios to help your cashflow planning.

Resource:            

Financial forecasting in a time of uncertainty

3. Manage your fundraising pipeline

Are you doing enough fundraising?  Understanding your fundraising success rates for different types of fundraising activity – from past performance – means that you can review your fundraising pipeline and see whether you have a high enough number of active bids or contacts.  Looking at all the open possibilities in your pipeline – if your previous success rate is X%, you can see whether you’ve got enough in the pipeline to meet your needs.  Regular checks can help you to see whether you need to increase your fundraising activities and build your pipeline.

4. Set targets, and compare your performance year on year

Comparing your performance year on year helps you to know what’s ‘normal’ in terms of income achieved at different stages of the year.  If you look back at the same period last year, had you achieved the same proportion of income for the year – or more, or less?  Understanding the pattern of your income helps you to know how well you’re performing in the current year – but don’t forget to take out one off bumps in income – they may not happen again.

5. Make sure everyone understands the finances

Good management accounts ensure that everyone understands the financial position of your organisation.  They will help you to communicate with your team and your trustees.  Preparing monthly accounts will mean that you stay on top of your financial position, and can respond to changes quickly.

Resources:          

Management accounting for charities

7 finance questions every trustee should ask

6. Understand your costs

We’re all familiar with the concept of full cost recovery, but sometimes don’t think carefully about what might happen when delivering programmes of work or particular activities.  There can be additional management or communications costs, for example, or needs for additional resources.  Thorough planning and discussion of resource needs can surface ‘hidden’ costs that need to be included in delivery costs.

Unit costs can change if improvements in systems or processes enable greater productivity, or if more resources are needed to deliver services due to changing service user needs.  A regular cost review will help to produce accurate information to feed into fundraising.

7. Make sure your Plan B is strong enough

You may need to cut costs.  Many of the organisations we work with at Cranfield Trust don’t have a strong enough Plan B – they tend to trim, rather than cut, when planning downsizing scenarios.  Use your cashflow to identify when you might need to make cost cutting decisions, and make sure the cuts you plan are substantial enough to make a difference – even when it’s a difference you don’t want to make.

8. Target, not scattergun

Be as selective as possible in your fundraising, to focus your resources on the opportunities which have the highest probability of success.  The more you can learn about potential funders and donors, the more relevant your applications and approaches will be.  Generic fundraising approaches are rarely successful, but spending time to get as close to your prospects as possible before making an approach can really pay off.

Resources:          

Investability: why should I invest time or money in your charity?

How to write a successful bid

9. Diversify income streams

Having a high proportion of income from one source makes organisations vulnerable to changes outside their control.  Explore as many funding opportunities as possible, including grants, contracts, social investments, corporate and individual fundraising.  For grant fundraising, the Charity Excellence Funding Finder Directory is a useful and searchable resource that is completely free, quick and simple to use.

Resource:                  

Sustainable fundraising: reducing grant reliance and growing diverse income sources

10.  Don’t forget opportunity cost

Some funding opportunities can be expensive: if you come across a fundraising activity which carries high demands in managing it or carrying it out – holding a big event, providing a lot of reports – it may be better to walk away.  There’s an ‘opportunity cost’ to spending time on demanding activities – you could be doing something else which will bring in the same income for less effort.

And a bonus point …

11. Develop a comprehensive business plan

Cranfield Trust is a strong advocate for business planning.  Having a strong plan, developed and agreed with colleagues and trustees, helps to focus activities, explore finances and plan ahead.  A good plan also means that you have useful information collected together to feed into your fundraising.

Resources:          

How to create a business plan for your charity

Cranfield Trust business plan template

Cranfield Trust offers free consultancy and other management support services on financial management and many other topics.  Contact us for a no obligation discussion, and find out more on our website.