Financial perspective of managing third sector organisations in turbulence times
HCDL contacted me to run a session on finance for the voluntary sector, focusing on how best to manage finance in current turbulence times. It needed an insight into handling the situation rather than elaborating on aspects of financial management. For the later, I have devised a Fluent in Finance course recognised by the Institute of Leadership & Management (ILM).
I commenced the session with the reasons why we run out of money, mainly for wrong reasons. It was interesting to see almost all of the organisations prepare profit and loss accounts, balance sheets and very few manage cash flow. It is vital to understand the importance of the cash flow for an organisation since it represents the ‘future’ of the organisation. A cash flow forecast sets out the cash inflows and outflows to the business during a particular period of time. It shows what will happen to finances in the future. It shows where spare cash will be generated and will signal financial danger points. Most managers and governance recognise the importance of the profit and loss accounts and balance sheets but not of cash flow! In reality, the balance sheet sets out the financial position of the company at a particular moment in time e.g. the year end. It is the ‘Snapshot’ of the organisation, i.e. the current position. The profit and loss account shows how the profit or loss of the business has been generated. It shows the financial track record of your organisation, i.e. the past.
A short simple exercise of management accounts helps to be creative in generating more income. How to increase surplus by 10% received various responses and I have put them into a structured format:
- Increase size of contract
- Increase value of contract
- Cut Direct costs
- Cut Overhead
The sector is now living in a ‘payment by result’ culture, whereby they need to invest into a project first and then claim the money with evidence of outputs. I outlined different strategies to deal with it including the Social Impact Bond for larger contracts. The consortium approach to overcome ‘minimum contract value’, its advantages and pitfalls were discussed, followed by a brief commissioning process.
Lastly, I provided an insight into ‘Financial Difficulties: Managing a Crisis’ and sign-posted on to other web links for further detailed information.
The next Seminar is coming up on Monday 8th April 2013 in Rotherham and in May in Hull.
