How charities can pick the right finance system

(Browse our charity finance Blumers if you want expert help selecting and implementing your own finance system)

Accurately reporting finances is critical for charities, which have the usual accounting needs, combined with stringent regulations and managing donations from supporters, businesses and others. With a range of accounting software for charities available, there are a number of important factors to take into account when choosing the right charity finance system for your organisation.

Charities differ a great deal in their size, purpose and reach, so these parameters must be acknowledged. Sub-standard accounting systems can cause problems, so it really is vital to pick charity management software that will effectively do the job.

The small or relatively new charity may select a simple system which meets its immediate needs, but be wary of a system that does not scale easily. The simpler charity software may be quicker and easier to install now, but it may lack features which are essential a little further down the track. More expensive charity software tends to offer more features, so bearing medium to long-term goals in mind when choosing a charity finance system may be wise.

Reports and analysis

When evaluating a charity finance system, it’s a good idea to examine the resources and flexibility it delivers for accurate reporting and analysis. Charities may need to report to a variety of stakeholders in areas such as tracking gift aid, project costing and budgeting, VAT, and rollover of cash reserves on balance sheets at different times. Incomings and outgoings may need to be classified according to their related activities, such as fundraising, governance or bequests.

An effective system should facilitate data being entered once to be classified and viewed in different ways to accommodate multiple reporting demands. An entry-level system may not provide enough options, although a small charity reporting to two stakeholders may not require a variety of extra features.

SORP or the Statement of Recommended Practice for charities, provides a framework for reporting and accounting, making it easier for trustees to meet their legal requirements for accurate, consistent and transparent financial statements. The HMRC provides full guidelines) and there is a SORP micro-site.

Satisfying regulators and stakeholders

SORP-friendly charity management software, which makes reporting and segment analysis easier, will leave more time and energy for making decisions which enable the charity’s growth. Charities also need to prepare a Statement of Financial Activities - or SoFA – for each reporting period, so ideally charity management software should make this task more straightforward too. The Financial Reporting Council has more information on SORPs and the role they play in sector-based auditing, finance reporting and actuarial services).

Multi-faceted charity management software could also encompass an element of CRM – Constituent Relationship Management – software, for building databases and tracking the diverse supporter base which the charity probably relies on for donations.

Fundraising activities are often key to generating funds, so your system should be able to process income from this source efficiently. Accounting software for charities can also process analysis of expenditure, generating audit trails, budget projections for different activities and financial periods, and balance sheet analysis. You might also want to consider capacity for processing staff time sheets, whether the charity is best served by a desktop or cloud-based system, and if the charity software can be customised to your organisation.

It will pay to analyse your charity, especially if it is a small one, and identify its main areas of activity to choose the finance system which will suit it best. Smaller chairties may be well served by a less complex system, provided core activities are identified and matched with appropriate features. Each charity is different, and most finance systems have different strengths and weaknesses. If very little charity income is derived from donations, for example, then a system with a large capacity for processing Gift Aid submissions may not be necessary. If you have large number of stakeholders who all require financial reports, a system which can enable this would be beneficial.

Factors to consider - choosing a charity finance system checklist:

• Match the system to the charity and its activities
• Check that the system can efficiently process data to satisfy stakeholder reporting requirements
• Is it easy to use?
• Will the system create a trail for auditing purposes?
• Can the system be customised to your organisation?
• Does it provide a clear picture of cashflow within defined reporting periods?
• Is the system SORP friendly?
• Will the system help produce Annual Returns effectively?
• Will the system support trustees to carry out their legal obligations? There are online resources to explain charity law and charity reporting. It may be worthwhile consulting a specialist in charity tax or regulations to be clear on how to comply as requirements differ according to the charity’s income and status.
• Make sure the system is scalable so that it can grow with your charity