For charities, this includes having effective budgeting, forecasting and cash flow management.

Duties of the trustees include protecting the charity’s money, keeping accurate financial records, knowing your charity’s financial position and dealing with financial problems quickly. This includes understanding the potential impact of different scenarios on current and future cash flow requirements.

Charities that have robust budgets and forecasts benefit from being able to see at a glance how performance compares with expectation, allowing them to compare between different scenarios and see the effect of flexing key variables. A vital element to creating a strategy to meet its objectives, whether during a period of boom or bust, is a focus on key performance indicators and scenario planning.

Whilst none of us can see into the future, trustees and managers of charities have the advantage of understanding their organisation and its activities. By capturing this knowledge, they can provide an expectation of income and costs which allows effective planning. Assumptions, based on agreements and facts, may be fairly certain; they can be based on intelligence gleamed over a number of years or they can be best guess.

Whatever the source of the assumptions, the key to good budgeting and forecasting is to regularly review, re-forecast and refine. For example, EQ Accountants works closely with the management team of one of its clients to prepare annual budgets which are reviewed and updated on a monthly basis. By monitoring financial performance each month, EQ Accountants’ clients are able to act quickly where expectations aren’t being met.

Assumptions, assessment of risks and reserves policies are not separate activities but must be integrated to inform management and trustees decisions. What are the risks that a project will fail? How certain are the assumptions and that income? Are reserves sufficient enough to provide assurance to the trustees that the risks can be managed?

Timely cash flow forecasting and proactive working capital management are crucial tools for a charity’s trustees and management.