Uday Thakkar: Get on top of your finances before you find it's too late

Failure to address financial issues is a recipe for disaster, says the treasurer of Trustee Networks

Uday Thakkar
Uday Thakkar

The words 'finance' and 'financial management' have a peculiar effect on large swathes of the population. Unfortunately, the reaction tends to range from indifference to terror.

Smaller not-for-profit organisations recruit trustees in the hope that they can plug the gaps in management's skills and knowledge. Recruiting a treasurer remains difficult. If the role is left unfilled, this often leaves a major hole in the organisation's governance. It leaves trustees with poor understanding of finances and financial management, and therefore unable to set and monitor the organisation's financial strategy.

The problem can be exacerbated by a culture of denial. Trustees will often not acknowledge a lack of financial ability or face up to the fact that their organisation has outgrown the skill set of the founder members. Language and communication can also be problematic. Treasurers or financial managers often appear to talk a different language from other trustees, which leads to misunderstandings. Treasurers are also often ignored as habitual naysayers.

Failure to address financial issues and a lack of the financial skills to take risks is a recipe for disaster, especially in the current fiscal climate. The current threat of a reduction in funding is a wake-up call to trustees - it is time to get a grip on your charity's finances. Trustees are legally responsible for the charity in all its functions, including financial management. At worst, ignorance of finance, or the reliance on someone else, will not save a trustee from the risk of personal liability if things go wrong.

A number of simple steps can help trustees get to grips with their charity's finances. If the board lacks the requisite skills, then seek help. Even when financially competent individuals will not commit to becoming trustees, many are willing to help by providing pro-bono advice, support or training.

Many organisations have only a small number of key financial measures that require trustee focus.

Simplifying internal financial reporting will allow everyone to understand the key issues and contribute to strategic decision-making.

Look at everything you do as if for the first time - ask questions and then ask them again. Involve the whole team to question all long-held assumptions - many might no longer hold true. Even some of the leanest organisations keep finding ways to save costs and produce efficiencies through this process of constant review.

Use financial modelling to look ahead. If, for example, you know there will be a cash-flow problem in nine months' time, it is much easier to take remedial action now than when the problem is just about to crystallise. Planning for the worst-case scenario will reveal all sorts of efficiencies and savings and help create a sustainable strategy. In such a scenario, it might help manage a different future such as a merger or a controlled close-down.

Making sure that the charity's reserves are at a sensible level is crucial. Having a reserves policy is a requirement of charity legislation and is key to making decisions on how spending should be managed.

Try to listen to the advice of your auditor or other professional advisers. It is likely that they will represent many organisations in a similar position to yours and will be well versed in the financial opportunities and pitfalls you are facing.

Despite its image, financial management is not rocket science, and often the biggest hurdle is actually facing up to the issues involved. You do not need to be financially fluent to prevent a problem crystallising, but it is important to face up to the organisation's finances, ask for help if necessary and be able to identify the critical issues in good time.

- Uday Thakkar is treasurer of Trustee Networks and managing director of the charity consultancy Red Ochre

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