Financial management in the charity sector is different. Compared to the corporate world, there are different compliance and reporting requirements, such as the use of a Statement of Financial Activities rather than a Profit and Loss Account.
There are also significant differences in the way that funds are treated, most obviously in the specification of Restricted Funds, where charities are obliged to use funds for a specified purpose, and must make sure they can account for the fact that they have done so.
These differences create unique challenges for financial management in the charitable sector. But, that said, the core principles (and the main stumbling blocks) are not so different to those of corporate and commercial entities. The ultimate objective is to manage information accurately, efficiently and transparently. And to stick to the rules set out in law.
As with any type of organisation, financial management is also fundamental to how charities function day to day. The movement and use of money underpin fundraising and project management at every level. Strategic objectives depend on being able to forecast financial resources and manage them along the way.
And just like all other types of organisation, charities are having to adapt to how to do all of this in a digital world. Digital technology is changing finance at every level. It creates new challenges, but new opportunities, too. Here are five ways charities can take advantage of those opportunities going forward.
Embrace Fintech Tools
Traditional accounting software can be clunky and inflexible. Charities can benefit from adopting cloud-based accounting solutions that offer features like real-time data access, mobile compatibility, and integration with donor management systems. These tools can streamline financial processes, improve transparency, and allow for better financial decision-making.
Leverage Online Fundraising Platforms
Many online fundraising platforms offer efficient donation processing, donor management tools, and data analytics. This can help charities reach a wider audience, manage donor relationships more effectively, and track fundraising campaigns in real-time.
Make Donor Communication More Transparent
Donors in the digital age expect greater transparency about how their donations are used. Charities can leverage digital tools to provide detailed financial reports, impact stories, and regular updates on how their work is making a difference. This fosters trust and encourages continued donor engagement.
Harness Data to Drive Decision Making
Digital tools can generate a wealth of data on donor behaviour, fundraising trends, and program effectiveness. By analysing this data, charities can gain valuable insights to optimise their financial strategies, allocate resources more effectively, and maximise their impact.
Treat Finance as a Strategic Enabler
Finally, by embracing digital opportunities in financial management as outlined above, charities have the opportunity to unlock one more significant benefit. Historically, financial management in the not-for-profit sector has been treated as an administrative necessity, a means to an end and a matter of satisfying regulatory obligations.
But by utilising data in decision-making, building better relationships with donors through more transparent communication around funding, and using the latest digital tools to do it in efficient, innovative ways, financial management can become a strategic enabler of charities’ ambitions. Just as is the case with for-profit organisations, a sound grasp of financial matters at every step unlocks value throughout the operational cycle.
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