In my recent past, I ran sessions on budgeting for sixth formers about to embark on university. It’s simple really: I gave them a scenario and a fixed budget and asked them to work out how to ensure that their money did not run out before the end of term.
Within minutes they would all be at ease filling out spread sheets, allocating their money between food, lodging, entertainment and—for the girls—clothes. They easily made trade offs between eating and going out, and came up with money saving tactics to reduce their phone bills and transport costs. After half an hour, they had created their own personal budget or ‘account’ and reasons for why it looked the way it did.
Why then do some people inexplicably run a mile at the mention of looking at a charity’s financial accounts? Even those who consider themselves numerate glaze over when financial analysis appears on the agenda. I have come to two conclusions about this: people either think it’s too complicated or it has never been explained to them in a straightforward manner. Of course, these are usually related.
So, what’s the use anyway? Company accounts are not just smoke and mirrors, but figures that are produced annually to show how charities have collected and spent their money. They are produced in a set format that allows for some comparison between organisations and are helpfully accompanied by the trustees annual report—a document that puts the flesh and bones on the numbers.
These company accounts provide the starting point for financial analysis and are key to understanding a charity’s financial position and its ability to manage its resources. Charities are currently facing a hostile financial environment, trying to bridge the gap between rising demand for their services and falling income levels; it has therefore never been more important to face your fears head on and really get a handle on the finances.
And so NPC has produced a report to help you do just that. Keeping Account: A guide to charity financial analysis addresses issues brought up in NPC’s The little blue book in more detail, providing guidance on how you can answer the following questions:
- Is the charity financially sound?
- Are there good processes for financial management?
- Are financial resources used efficiently? And what are the unit costs of activities?
Keeping Account is designed to give practical advice to readers of reports and to articulate how NPC looks at the financial aspect of charities. Whether you’re new to this or an old hand, we hope it clarifies what to look out for—signs of growth, red flags, and all the grey areas in between. We think it’s been missing for a while and would love to hear your feedback.