A widening gap
Back in March, an ongoing survey by Nottingham Trent and Sheffield Hallam universities with the National Council for Voluntary Organisations found that 30 per cent of charities were experiencing deteriorating finances. Almost double that figure (59 per cent) expect demand on their services to grow in the coming months and it is organisations of every size that are being impacted.
The British Heart Foundation has reported that the last year has seen net income fall by half and, if that’s the situation with the larger national charities, it doesn’t take much to work out the financial predicament many small-medium sized NFPs are facing. The widening gap between funds coming in and vital services being delivered is the antithesis of basic good economics.
Taking stock
As both business and consumer confidence slowly starts to return to pre-pandemic levels, NFP organisations need to be using this time to take stock and carefully review their financial sustainability and may even be looking to make investments to make their operations more viable.
Of course, part of the problem here is that many small-medium sized charities are simply not geared up to review their financial health in the detail that the current climate demands.
In April, a new report was published by the research charity Pro Bono Economics. The study, "What’s missing? Evaluating social sector data gaps", found that “substantial gaps” in data are having major implications on how effectively charities and other social sector organisations are able to function. It goes on to highlight that available data on the financial stability of the sector is relatively poor and that “much of what does exist in official statistics is hard to access, particularly in real-time, and is fragmented.” The result of all of this is that it becomes incredibly difficult for policymakers to understand the level of financial risk in the sector and forecast the impact of any policy changes.
Visibility is vital
Of course, we all know that NFPs face their own unique set of financial challenges, balancing donor and fundraising efforts against tax compliance and VAT, not to mention partial exemptions and non-business methodologies. In short, NFPs are funded in a particular way and have diverse sources of equity, making them financially complex but that makes visibility all the more important.
It is visibility that is the common thread that runs through all of the data and points that we have already discussed. A lack of visibility makes it difficult for NFP organisations to properly assess financial performance and growth opportunities, which in turn leads to data gaps about the sector as a whole, resulting in unhelpful forecasting as to the real impact of policy changes, which can then have a negative financial impact on charities – it becomes a vicious circle.
So, as the sector looks to bounce back and capitalise on returning confidence, it is the idea of financial visibility that will be key. Accurate and real-time data is going to provide a clear picture of the financial strength of your organisation.
There are five key questions that NFPs should be asking themselves in relation to financial sustainability:
- Is your team able to access up-to-date and accurate financial data to assist with planning and forecasting?
- Is your financial reporting system too rigid for the current climate? Being able to customise and filter data will offer a much broader financial insight.
- Does your current system allow you to track KPIs? Without the right software to monitor KPIs, you may be missing out on key data re market performance and areas of untapped potential that could influence future growth.
- Are you able to automate time-consuming financial tasks? Alleviating the time it takes to collate invoices or prepare financial statements can free up more time to focus on other areas of your organisation like fundraising and partnership work.
- What grants and funds are available to help me upscale the way your business handles finances and what technology is available to help you?
Knowing the answer to these questions is the first step to achieving financial sustainability and planning ahead to ensure your organisation can continue delivering vital services to those who need you the most.
Find out more about our Financial Management Software Suite.