In a not-for-profit organisation the board or committee of management is ultimately responsible for finances, though it may sometimes delegate some responsibility to a funding or finance committee. Through careful analysis and planning, good financial management should result in secure funding and the best possible use of available funds.
To manage your finances efficiently you need to:
- Determine your resources
- Cost your needs
- Set a budget and allocate funds to programs and initiatives to support the organisation's mission
- Administer the organisation's finances
- Monitor and report progress against your budget
Administering the finances
It is the treasurer's duty to administer funds. The treasurer's responsibilities include:
- Maintaining financial records
- Organising bank accounts
- Accounting for all money received
- Accounting for all money spent
- Adhering to the organisation's terms and conditions of business (payment of bills, contractual arrangements)
- Banking money
- Signing off on outgoing expenses
- Preparing monthly/annual financial statements
- Preparing books for audit
- Drawing up the budget for the board
In small community and non-profit groups, the treasurer has little professional support and fulfills most of the jobs listed above. The position is usually a volunteer one, so it is a labour of love. The treasurer should have a good working knowledge of managing finances and realise that the position may require a lot of time and dedication.
In larger organisations where professionals are employed, the treasurer is normally supported by office staff and perhaps a finance sub-committee, so duties are shared. If duties are not shared the opportunity to seek external help either through a bookkeeper or accountant or through assistance internally should be investigated. It is important to ensure that the treasurer is not overburdened, as burn-out can occur and lead to disenchantment.
The treasurer also prepares financial reports to assist with board reporting, future planning and performance monitoring. Treasurers should, where appropriate, keep up to date with relevant taxation legislation and legal requirements and ensure that they comply.
In order to plan a year of programs or events and to set goals, an organisation needs to know if its plans can be funded. Knowing how much money is available and allocating it accordingly gives an organisation a clear picture of where it sits financially at any given stage.
There is no point planning a new initiative if there is no money available to fund the exercise. Forward budgets stop organisations from falling unnecessarily into debt. Organisations that continue to overspend will eventually fold, so sensible budgets are essential for success.
Budgets generally coincide with financial years, and so usually commence on July 1. Planning for a budget starts earlier - how early depends on the size of your group, the amount of money you turn over each year, and the amount of time generally taken to prepare the budget. You should aim for the board to sign off on the final budget by June at the latest, so all changes can be implemented for a July start.
Budgets cover two main items areas: Expenditure and Income.
Expenditure might include:
- Bills - electricity, rates, telephone
Income might include:
- Sales of goods and/or services
- Annual fundraising events
When setting the new year's budget it is important to analyse the previous year's budget, but don't base your figures purely on that - use past experience as a guide and then anticipate spending according to the organisation's 12-month business plan. Take into account any expected cost increases that may occur (e.g. wages, electricity, etc). One simple method of doing this is to apply an escalation factor to a previous year's results. But if you can insert precise figures then do so.
Preparing a budget involves making educated guesses on what costs and income will be. It is always best to be conservative when estimating your income and realistic when estimating your expenditure. If you over-estimate your revenue and take on programs or staff in the anticipation of this increased revenue, then danger may be just around the corner. Extra funds are a bonus, too little could spell disaster.
It is also important to monitor your budget to keep on track. A comparison between budgeted expenditure and actual expenditure should be completed each month and discussed at board meetings. Refer to the preparing a budget help sheet for more information about this process.
Plan for the future
While a budget serves a short-term (12-month) function, financial planning allows organisations to plan for the future, anticipating spending and income for the next three to five years.
To plan for the future an organisation needs to:
- Develop contingency plans (for example, anticipate any funding sources that may dry up, and identify other sources of potential funds)
- Plan for future events and programs and determine how much money will be needed to support them
- Set financial goals - profit margins or reinvestment strategies
- Analyse your services or your cause and identify relevant grantmaking bodies.
When managing your finances you should always be on the lookout for methods that can better utilise your precious resources. Here are some areas to consider:
- Reduce bank fees. You can do this by making fewer transactions and running accounts that suit your organisation's needs, or consolidating your accounts into one.
- Manage time (a valuable resource). Consider internet banking.
- Utilise resources. Make use of the expertise of members/supporters before seeking financial/legal/tax advice.
- Source the best insurance package to suit your organisation. Why pay for extras that are not applicable to your group's activities? Seek alternative quotes.
Reporting and audits
Robust reporting of your finances and having your books audited by an independent auditor will ensure you stay on track. Clear and legible books enable an organisation to readily access information and provide accurate accounts to potential sponsors, grantmaking bodies, the tax office, etc.
Remember you have a legal responsibility to abide by tax and insurance laws as well as minimum wage laws and employment laws. Don't cut corners to reduce your expenditure and certainly don't cut costs at the expense of the law.
You also have a legal responsibility to ensure you do not trade while insolvent. Doing so is something which has the potential to cause you real trouble - as an organisation, as a board and as an individual. The insolvent trading provisions are some of the most important in the current company law. These provisions compel board members not to allow the organisation to trade while insolvent (unable to pay debts as and when they fall due) and not to allow the organisation to become insolvent.
You will breach this duty if you fail to prevent your organisation from incurring a debt when a reasonable board member would have been aware that there were reasonable grounds for suspecting the organisation's debts could not be paid as and when they fell due. Even if the organisation was solvent at the time of incurring the debt, an offence is committed if the organisation becomes insolvent by incurring the debt in question. In other words, if the organisation is in a death spiral, you have to close down while there's still enough money in hand to pay everybody what they're owed.
Ultimately, good financial management allows an organisation to operate efficiently and plan for the future.