Financial Management and your Community GroupIn 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:
Administering the financesIt is the Treasurer's duty to administer funds. The Treasurer's responsibilities include:
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.
BudgetIn 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:
Income might include:
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 futureWhile 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:
TipsWhen 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:
Reporting and AuditsRobust 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. Good financial management allows an organisation to operate efficiently and plan for the future. More information about managing your community group's finances is provided in the free Guide for Community Treasurers, which has been produced by Westpac and Our Community. Click here to download the guide. Click here for more help sheets. |