Guide to financial management
Good financial management will allow you to create and manage budgets and avoid difficulties.
You don’t need previous experience of accounting, or even to be good at maths. In this guide to financial management for voluntary organisations we explain the basics of best practice for financial management and how to implement a robust financial system.
This guide breaks down financial management into these basic elements:
According to Kate Sayers, third sector finance expert, ‘financial management is about good stewardship of the assets available to a charity, as well as ensuring that the organisation has the resources it needs to fulfil its objects and plans’.
A financial process should be implemented throughout the organisation. It should inform important financial decisions, such as where to allocate funds, make cost savings and grow income.
A system will reduce the risk of financial mismanagement and enable you to identify opportunities to improve finances in your organisation. The core infrastructure of this system is as follows:
Your organisation should have a set of financial policies that explain how money should be managed. These policies are fixed (unchanging) and should be taught and used throughout the organisation.
Use spreadsheets to record your income and outgoings each month. This will enable you to track and monitor cashflows and make sensible decisions about any deficits and surpluses of cash.
The overall responsibility for the financial sustainability of an organisation shouldn’t be left to just one person. Everyone has a role to play and the responsibility should be spread throughout roles in the organisation.
An organisation will have safer financial management when financial policies are taught throughout and embedded in the organisation’s culture and mindset.
The board of trustees should assess the organisation’s financial reports and have the final say about how budgets should be spent. Trustees should ensure that financial resources are used for the right purposes and not misused.
Read more about the financial responsibilities of trustees and the various liabilities involved.
An established organisation might employ a financial officer to oversee the smooth management of finances. This role brings accountability and oversight to day-to-day operations. The financial officer should communicate and enforce the organisation’s financial policies within the workforce. They might be expected have a strong understanding of financial regulations in the sector and advise management on important financial decisions.
Financial management requires the use of basic tools and skills that can be easily learned.
A Microsoft Excel workbook is the most commonly used financial management tool. If you don’t have access to Excel, then Google Sheets is free and just as easy to use. Here are some of the ways you can track and manage money using spreadsheets:
If you’re just starting out, begin with a basic budget plan in Excel which you can gradually add more features to as your finances grow more complex. Start with a free template to create your own budget tracking tool.
Watch an easy tutorial on how to track spending using Excel.
Consult your business plan to ensure your income, budgets and outgoings are aligned with your goals and that your business model works for your organisation’s goals.
A fundraising strategy should set out your financial goals. It should help you decide how much cash your organisation needs to run projects and activities. Consult your strategy when you need to open a new income stream, fund a new project or address a shortfall in the budget.
The budget sets out what money is to be spent and where. Start with a free template which you can adapt for your organisation.
Also known as a cashflow forecasting, this is a detailed assessment of the money that’s expected to flow in and out of the organisation on a monthly basis. You might be asked to perform a financial forecast in order to determine how much money you need for projects and operating expenses in funding applications.
Free templates for financial forecasting are available here.
Registered voluntary organisations and charities are legally required to report their expenses. You should collect receipts and any evidence of expenses to show how your funds have been spent. The organisation’s expenses should be reported to the board of trustees.
At the end of the financial year the organisation should conduct a thorough review of expenditure to identify where to make improvements and set limits on spending. Also known as an audit, this process provides insights into how to allocate budgets and increase financial productivity.