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"what do I need to know about finance for a non-profit organisation"
"how do I manage my charity's budget properly?"
"where do I start with my CIC's finances? I'm new to managing a budget"
The headlines
When you start running an organisation you’ll quickly realise that when it comes to managing your budget, you’re in new territory.
When you’re managing a project budget it’s pretty straightforward in lots of ways- there’s a list of the money you have and where it’s coming from (your budget income lines), and a shopping list of everything you will be spending that money on (your budget expenditure lines). The difference between those is how much money you have (or don’t have) by the end of the project.
With organisation budgets it’s a different ball game. You might have multiple projects and there isn’t really an ‘end’ to the budget in the same way. If it’s a non-profit organisation, there are also a few other things to be aware of, especially if you’re receiving income from funders.
Even if you have bookkeeping and accounts support, you still want to be able to understand and manage your finances on a day to day basis. Knowing where your organisation is at financially and how to best plan and manage your resources is something that you need to do, and isn’t the same as having someone who does your annual accounts or makes sure all your payments are done properly.
The point of this guide isn’t to stress you out. Even if thinking about maths at school makes you want to cry (me too), I’m a firm believer that getting to grips with your finances can be really empowering. Yes I am biased, I flipping love a spreadsheet, but if you can add up on a calculator, can google and can ask for support when you need it, then you got this.
Guest contributor Introducing Susie- your Finance Fairy Godmother.
I have written this how-to guide from my perspective managing the finances for multiple non-profit organisations. But Susie is the qualified and certified real accountancy deal, so she’s double checked my work and added some top tips and links to more resources from her. You can find out more about Susie here.
6 mindset shifts when you're managing organisation budgets
Make sure you’re covering your core costs
This one is number 1 for a reason. I made the mistake of forgetting this when I first set up my first non-profit organisation. It’s absolutely key to making your organisation sustainable.
If you’re deciding on how much to charge for something, or you’re submitting a funding bid, make sure that you include some money to cover the ongoing costs of running your organisation. Your core costs, or your overheads, are what it costs each year to keep the organisation running. Things like insurance, web hosting, office costs etc. You may also have core staff costs e.g. admin support or book-keeping, or your time to manage the organisation. Anything you’d still have to pay, even if you didn’t deliver any activities for a while.
Work out your core costs and make sure everything you do puts some money in the pot for core. As a simple example, if it costs £1,000 per year to run your organisation and you do 10 projects a year, each project would need to include £100 income towards your core costs. Otherwise by the end of the year you’d be losing money. I often work out a percentage that you add on to any fees or build into funding bids. Lots of people budget 20% on costs but it’s useful to work out exactly what % of your annual budget is needed for core costs.
Understand the difference between restricted and unrestricted income
If you’re getting grants from funders or donations from individuals or crowdfunding campaigns, it’s very likely that some or all of that money will be restricted funds. That means you have to spend it on the things it was given for. For example, if you run a fundraising campaign to buy a new minibus and you tell people that’s what they’re donating for, then any donations you get must be used for the minibus only. Ditto if you apply for funding for a particular project.
For this reason unrestricted income can be really helpful to have as part of your income mix, because you can use it however your organisation needs.
To make sure you’re using restricted income properly, you’ll need a way of tracking what money you’re spending on what. If you only have a couple of things like this, you can probably get away with a spreadsheet but I’d really recommend getting some software to track your organisation’s finances properly. In Xero and Quickbooks, for example, you can set up codes to track the spend on particular projects. So then when you need to report to a funder on how much you’ve spent, you can do it at the click of a button. It’s honestly life changing and worth taking the time to get the software set up to match how you budget and what you want to be able to report on. Susie’s got a blog post here, on how to get Xero working for you.
Make friends with your cash flow
When you’re running an organisation budget you need to think about 2 things- does the amount of money we have coming in cover our expenses AND will we have enough money in the bank to pay our expenses at the right time. These are 2 different things because of cash flow- i.e. when the cash flows in and out of your organisation. If you put on an event, your ticket income might cover the event costs BUT you might have to pay for some things (print, room hire, staff costs, catering) before the ticket income arrives in your bank account, especially if people book at the last minute. Putting together a cash flow forecast allows you to see when these kind of situations might happen and help you plan for it. If you’ve not done a cash flow before, Google and Youtube have stuff to talk you through it, but if you get stuck shout me and I’ll send you a template and a quick video walk through.
With your budget and your cash flow you also want to get into a pattern of regularly monitoring and checking any reports from your accounting software. This might be weekly or monthly depending on how busy your organisation is. Susie has a video on tips for maintaining a healthy cash flow here.
Build up your reserves
In Susie’s words: “Imagine your reserves as your rainy-day fund, your safety net in the unpredictable world of charitable work. These reserves are essentially funds that you set aside to ensure you have enough financial stability to weather unexpected storms, or to seize unforeseen opportunities. Just like squirrels gather acorns for the winter, charities create reserves to secure their long-term sustainability.”
When you’re starting out and are scrabbling around to pay for things, having spare money can seem like an impossible dream, but keep it in mind and work on it gradually. For most small organisations, building up your reserves might take a few years, but however small it’s worth squirreling away any little bits of unrestricted income you can.
Make friends with your accountant
I would always recommend paying an experienced professional to do your annual accounts- to make sure you’re legally sound and also because they can often save you money or find things that need sorting before it’s too late.
Choose an accountant who understands the non-profit sector, particularly if you’re a CIC or receive grants from funders. It’s a whole different world from standard accounting and you can end up in a pickle otherwise. Make sure you can have a useful conversation with them and that they can explain things to you in plain English. They should make things easier, not more confusing.
Susie’s got a great guide to understanding basic accounting terms here that should help with the translation.
Think longer term
This is a key difference between managing an organisation budget and managing a project budget. You always want to be looking ahead, and as your organisation grows and develops you can extend your viewpoint. Moving to annual budgeting is one big mind-shift but if you’re at the point where you’re employing people, fundraising etc, the further ahead you can plan, the better.
Look at things like when big chunks of funding are coming to an end, when you might need to find new or replacement types of income and what you can start putting in place now, for if anything you depend on financially might change. If you’re applying for bigger grants you often need to be submitting at least 6 months ahead of when you need the cash.
This is a weird analogy to end on, but I’ve realised I think of the budget and financial management of an organisation as like an animal that I’m caring for. It needs feeding, cleaning out regularly and keeping healthy so it can grow. Rather than it being a list of transactions, think of your budget as like a little tamagotchi that you’re looking after. (If you’re too young for this reference or don’t know what I’m chatting about, it was an odd time but these things were everywhere.)
What next?
Susie has a load more guides and blog posts on her website here for creative freelancers, arts organisations, charities and other non-profits. She also does one to one support and training. (This isn’t an affiliate or promo post- we just decided to collaborate because our stuff compliments each other pretty nicely)
If you want to sort out your programming planning and organisation strategy so that you actually have a plan to make your annual budget from (and you want to make your work easier to fund) check out my programme, Sticky-note Strategy here.
And lastly, if you want a free dose of support to your inbox each month, you can join my mailing list, Sticky-note Squad, here.
Each month you get:
3 free things: resources, software, opportunities ideal for orgs like yours
2 actions you can take this month to develop your organisation
1 example from a real organisation sharing how we made their work easier to manage and fund
You can ask me questions and I’ll also let you know when I release new training or how-to guides.
If you run a not-for-profit company, small charity, CIC or community group you’re often doing it all, and often by yourself. Come and join the squad.