The Importance of Understanding Charity Finances

“Over the last month I have been running sessions for the staff team at YG titled ‘Understanding YG’s finances’. I had wrongly not shared the ins and outs of YG’s income and expenditure with the wider staff team before. I had assumed the team didn’t worry about where the money comes from and how an organisation like ours works as long as they are able to do their jobs. This week I learnt that not understanding how our funding cycles work and where and how the money comes from, can leave some of our team to be disenfranchised. It has made some question how management make their decisions and has led some staff to feel resentful about money being invested in certain areas and not others.

“Having been the CEO of YG for 12 years, I sometimes forget the knowledge I hold isn’t shared by others. We have grown considerably in recent years and this means I don’t spend as much time with the teams on the ground, delivering training or sharing my knowledge and experience. My role has become much bigger and I have many more challenges to contend with. I also don’t want the team to feel the ongoing pressure of generating income as their focus needs to be on meeting the needs of young people.

“However taking time out to share knowledge with the whole team is essential particularly as so much of our workforce is in the early stages of their career. Through this process I have learnt there are some essential things that our teams need to understand:

• The difference between restricted, income which makes up 90% of our income and free income. Helping staff understand that we often don’t have choices about where we spend the funding we get, the funding available to us normally comes with clear restrictions of what we can apply for and deliver.
• Understanding the difference between fixed costs and variable costs helps the team understand where we can make choices and where we can’t.
• How YG has been impacted by the cost of living increase, in just the same way as the team are being impacted helps show the additional income we need and don’t have.
• Understanding there is an expertise to balancing income, expenditure, unexpected costs and making the right financial decisions at the right time has helped staff value the our board of trustees and their knowledge in these uncertain times.
• Why a charity holds reserves and the balancing act that goes into deciding whether to spend it. Staff can see the need to use it during a crisis, like the one we are in now, but also now understand the need to have cash flow in order to run the organisation and ensure we are stable.

“I have added more workshops in for the coming weeks so those who could make it first time round will get another chance. We are encouraging all our staff to attend so they can learn more about the world they work in. Hopefully this will help the teams respect each other more, understand what management spend time doing and understand the pressures being faced at the moment.

“All of the above has highlighted how important our relationships with funders are. Being able to work together in times like these to consider how we walk the financial tightrope we are all on at the moment. Some key thought I have for funders are:

• It now costs us more to deliver what we did last year. We understand funders might not have more money but then please allow us to do less with what you give rather than expect the same as last year. This is hard to manage as our waiting lists are growing not reducing, but we need to ensure we are here for the future and not overcommit ourselves now.
• Almost all of our services are now running at a financial loss. This is because we have done right by our staff and committed to pay above the real living wage. For some staff this has meant an increase of over 10% on their salaries in the last eight months. Our fuel costs have also significantly increased. We know this is a big ask but it is essential for charities, not just YG, to receive additional income that will help us through the financial crisis. We experienced some incredible commitment from funders in Covid and ask funders to explore how we can work together again to provide similar commitments to help us through this next challenge.
• Every little helps, you will see we have developed some key relationships with local businesses and have a series of Christmas events, runs, walks and all other crazy fundraising ideas. Each of these events contributes much needed free income to invest in our funding gaps. Allowing us to ensure the most at risk young people still receive support. If you are able to please get involved; have a look at opportunities for Challenge Events, Philanthropy and Corporate Support on our website.

“Being a CEO can be a challenging role but I am surrounded by a management team who are all in it together, a board of trustees who are committed to doing right by our team and ensuring that we look after the future of the organisation, a staff team who truly believe in ‘inspiring young people.’

“This is a stressful, all-consuming and emotional time for everyone. But we must continue to work together to traverse this latest challenge and ensure we are here for generations to come.”