3 reasons why managers need to get their head around charity finance
Finance is an amazingly effective management and communication tool.
Finance is a word that seems to scare the majority of the population. Many managers confess that their eyes glaze over and that they go weak at the knees when asked to review or discuss charity finance.
There is a universal dread of finance probably because it is so poorly taught at school. In later life the approach to financial information is undertaken as if it is an alien language. Often this is done deliberately by those in the finance and accountancy function. “Only we can interpret these masses of symbols”
Yet finance is an amazingly effective management and communication tool.
Think of numbers as a shorthand, or cipher that allows us to summarise pretty complex and diverse information into something that is potentially understood. As a manager you need to be informed about what you are managing and you need to inform others about what you intend to do and how you are progressing.
Getting to grip with finance and numbers will help you achieve this and in turn this will assist you into developing into a better manager.
Consider the following areas where a better understanding of finance helps you manage better:
Planning
In order for a charity to fulfil its charitable objects it needs to establish a number of targets or goals. A strategy needs to be created in order for the targets to be met. The strategy may look impressive on paper however when you start considering resource requirement and timing you will probably need to modify the strategy to meet the financial reality.
Decision making
Should you take on a project or not, should you recruit or outsource, do you expand or shrink, do invest in training/ resources/ skills these and others are decisions that managers need to make on a regular basis.
You can go with gut instinct or experience but this is hard to justify to others in the team, your superiors, the Board or (hopefully not) regulators. Understanding of finance and how numbers work is crucial. Will a certain level of investment in the right resource lead to the right outcomes? Can you show that the figures “stack up”?
How does this relate to trends, are costs rising or falling, how do the seasons, the weather, economic cycles, and political change impact on the decision you take?
All of these inputs require an understanding of numbers and finance and help you to make the right decision under the circumstances
Monitoring
How do you check on progress? Are your projects progressing as planned, if not why not, what has made the difference? Again financial information allows you to monitor progress and spot differences that need to be dealt with. We usually use budgets to do this. Creating and reviewing budgets must be the most common financial tool managers’ use. Familiarity with how to construct and review them is an essential skill.
Often the information is presented in such a complex or cluttered way that it is difficult to understand. Managers can be too scared to challenge the way the data is received. Insist that the information is presented in a way that is easily understood. Use charts, graphs, colour coding – whatever helps you. The finance/ accounts department are there to serve you not the other way round.
In the many years that I have supported management and boards in charities it has been the area of finance that they have found the most daunting. Often it is a case of educating the managers to better understand what they are trying to do and to emphasise that as a communication and decision making tool it has to be easily understood. If it is, you can make better decisions. Increasing the confidence of managers in using this valuable tool greatly improves the impact and sustainability of the charity.
DSC runs a quarterly 2 day introductory financial management and charity workshop where the outcome is to increase confidence, make better decisions and improve your management kills.
