Charity Finance

Keeping a charity’s finances shipshape is a must to keep the lights on and the good work rolling. Let’s dig into where charities get their money and why being open about where the cash goes matters so much.

Where Charities Get Their Money

Charities have a few tricks up their sleeves when it comes to raking in the funds. The way they do it depends a lot on their size and what they’re up to. Here’s the scoop on where small charities usually get their dough:

Source of Income	What It Means
Grants	Money from the government or foundations, usually for specific projects or just helping out.
Donations	Cash from folks, businesses, and other groups who like what the charity does.
Trading	Selling stuff or services.
Social Enterprise Activities	Making moolah from business-y things that have a good cause.
Delivering Contracts	Getting paid to do things, often for the government or public services.

Groups like GuideStar and Charity Navigator keep an eye on charity finances and give them ratings based on how well they handle their money. These ratings help make donors trust that their bucks are in good hands.

Experts say charities need an independent board with at least three members. Big charities, especially those getting a lot of donations, should have at least five members on the board, with those folks having the final say.

Why Transparency and Accountability Matter

Being clear about money stuff is super important to keep donors, beneficiaries, and others in the loop and feeling good about where the money is going. Charities that heavily rely on donations are usually quicker to file their financial reports.

Charities with top-notch accounting practices, clean audit results, and audits by pros in the field tend to get their financial statements out there faster. This was seen in a study of 8,490 UK charities from 2007 to 2018.

Transparency means being honest and clear about finances, doing regular audits, and sharing annual financial reports. Accountability means showing you’re using the money wisely, following ethical rules, and sticking to the law.

If you’re itching to know more about managing finances in the nonprofit game, check out our guides on financial management for non-finance managers, financial management duties, and financial management regulations.

Issues with Charity Money Management

Charities have a bunch of problems keeping their finances in check. Among these, dealing with the rising cost of living and keeping financial reports timely are the main headaches.

Cost of Living Crunch

With the cost of living climbing steeply, charities are feeling the pinch. People just don’t have as much spare cash to give away. According to Pro Bono Economics, one in four donors has cut back on how much they fork out, while only 10% are giving more.

But here’s the kicker—donations are slowing right when more people need help. In the run-up to September 2022, Citizens Advice was sending nearly 23,000 folks a month to food banks or other aids – a whopping 157% jump from pre-pandemic levels. And get this, 76% of people reckon charities should be the ones stepping up to help those hit by the crisis. No wonder charities are feeling the heat.

Stat	Number
Referral boost to food banks (Sep 2022)	157%
Folks who think charities should help	76%
Drop in donations	25%
Increase in donations	10%

Donations via direct debit have been stuck at around £20 a month for the past five years. Rising costs mean that charities which had a modest buffer of 6.5 months’ worth of expenses before the pandemic are now watching those reserves drain away.

Keeping Financial Reports on Time

Getting their financial reports out on time is a big deal for charities. It’s all about being transparent and earning trust. But many can’t seem to hit the deadlines, making them look dodgy and shaking donor confidence.

Charities juggle complex funding and navigate rat’s nests of regulations about what they must report. This tangled mess leads to delays in getting their financial statements out. The pressure for clear and honest accounting is intense, making it crucial for charities to follow tough reporting rules.

Using modern financial management software can make a world of difference. These tools can sort out the mess and speed up the reporting process, ensuring accuracy. Tech can boost how smoothly they handle their finances and help them meet reporting deadlines without breaking a sweat.

Want to know more about tackling these financial headaches? Check out our detailed resources and articles on financial management for managers.

Keeping Charities Running Strong

Charities need more than good intentions—they need financial muscle to keep moving forward. Diversifying income sources and introducing solid financial controls are key. Let’s break down how to keep the engine running smoothly and the tank full.

Diversifying Income Streams

Putting all your eggs in one basket? Bad idea. A mixed bag of funding helps charities keep afloat and thriving. Here’s a rundown of where you can get that green:

• Grants and Donations: Still the bread and butter for many. Whether it’s government money, private foundation grants, or individual donations, building strong relationships is gold. Think about how Feeding America does it—showing the results and impact of donations keeps the trust and cash flowing.

• Trading and Social Enterprises: Running a business can bring in steady cash while pushing your mission. From selling products to offering services, these enterprises reinvest profits into your cause and create lasting community ties. Plus, they can provide jobs, boosting the local economy.

• Service Contracts: Partnering with government agencies or other organizations to deliver services offers reliability. You not only get a steady paycheque but also strengthen your community presence.

• Repayable Finance: Don’t shy away from loans when needed. Borrow from traditional banks like CAF Bank or look at unsecured finance options like CAF Venturesome. Use these to expand, pay off debts, start new projects, or manage cash flow.

Here’s a snapshot comparison:

Income Source	What You Need to Know
Grants	Apply and get from government or private sources.
Donations	Come from individuals or companies; maintaining relationships is key.
Social Enterprise	Make money by selling products or services that align with your mission.
Service Contracts	Get paid for providing services through government or organizational partnerships.
Repayable Finance	Loans or advances; it means financial planning is crucial.

Need more ideas? Check out our guide on financial management for managers.

Locking Down Financial Controls

Good financial controls aren’t just about counting pennies—they’re about trust and accountability. Let’s break it down:

• Internal Controls: Have clear separation of duties, need proper approvals, and regular audits. This kills any funny business before it starts. Keep tabs on financial policies and fix any gaps quickly.

• Audits: Regular, external audits shine a light on your finances. This helps catch anything out of placeTransparency: Open up your books. Sharing detailed financial reports and impact statements builds trust. Feeding America nails it by showing that 98% of funds go straight to their programs.

• Staff Training: Your team needs to know the ropes. Regular training on spotting and reporting fraud and understanding financial policies keeps everyone alert.

Dig deeper into maintaining trust with our sections on financial control and sound financial management.

Following these steps not only boosts financial health but also sets the stage for your charity to make a lasting difference. Keep the funds flowing and the mission rolling!

Modernizing Charity Financial Practices

Going Digital for Less Stress

Donations are down, demand is up, and costs are skyrocketing. Charities face brutal financial challenges today. The way out? Tech. It’s time for charities to step into the digital age to get things under control. Adopting financial management software can do wonders by boosting data accuracy, enhancing reporting, and improving how resources are used.

Listening to your audience and focusing on what they need helps make the tech transition smoother. This human-centered approach ensures the tools you pick work for everyone involved—staff, donors, and the people you serve.

Cool Tech	What It Does For You
Financial Management Software	Better data, sharper reports, smarter spending
Online Fundraising Platforms	Reach more people, spend less
Cloud Storage	Secure, easy access to your stuff

Charity Navigator says big nonprofits (bringing in over $50 million a year) should post their latest IRS Form 990 online. Showing off this info proves you’re managing money well and keeps donors in the loop.

Using tech to boost accountability and maintain donor trust is a no-brainer. Going digital with your finances also means you can whip up reports faster and get your accounts out there in no time.

Keeping Up with Donors

Donors are getting pickier, and charities need to keep up. A whooping 80% of donors want to see proof that their contributions are making a difference, says Double the Donation.

To satisfy this demand, be super transparent with your financials. Show detailed reports on where the money goes to bolster donor confidence and encourage future giving.

What Donors Want	How You Deliver
Proof of Impact	Share detailed financial reports
Transparency	Post annual reports and IRS Form 990
Smart Management	Have an independent board and follow fundraising laws

Donors are holding their wallets tighter these days as the cost of living rises. Charities need to be tight with their bucks, too. Research shows that spending around 35% on overhead is a sweet spot for success.

Fundraising isn’t what it used to be. Online donations and social media are where it’s at. Keeping up with fundraising laws also keeps your credibility intact.

Staying in tune with donor expectations is key to ongoing success for charities. Being transparent with money, managing it well, and embracing digital tools can meet the shifting needs of donors and build strong, long-term relationships.

Check out more of our expert tips on financial management duties and see what a financial manager makes.