Freelancers for charities

Financial forecasts - tips on how to do them

Posted by Ursula on 06/06/2021

This is the summary of a Blume Webinar delivered by Ursula in November 2020

It is always important to plan for the future and it is always impossible to do it accurately, and now it is more important and more impossible to do than it has been for a long time.

So here are some tips for charities currently trying to put together financial forecasts:

  1. Do it! Even if you don't feel you have enough data or don't fully understand what you do have, the process of starting a serious forecast will be useful and make you feel better (probably).
  2. Your model – almost certainly a spreadsheet – needs to be dynamic. It must be easy to understand and easy to adjust so that people can play with different scenarios in real time. This will ensure that decisions can be made in meetings and that there isn't an endless round robin of updated projections being shared. And it can be updated as you go along. Email if you would like an example of what such a spreadsheet looks like.
  3. Don't default to the best or worst case scenario. Defaulting to the worst can be as damaging as defaulting to the best especially if it leads you to make cuts you don't need to make.
  4. Spend time thinking about all the variables and scenarios.
    • A. Is it a temporary dip or a permanent change?
    • B. How could the shape of the staff structure change over time (a) naturally (b) through restructuring?
    • C. What could happen to your other large costs? (rent is usually the biggest)
    • D. Will each of your existing income sources shrink or grow? When and by how much?
    • E. What resources do you have other than money?
  5. Be clear about timings for costs and income. It doesn't matter if a big grant comes in six months after you have run out of money and closed the charity down.
  6. Put in place a timetable for reviewing and updating – trustee meetings are obviously a good starting point but given how quickly things are currently moving you may need more frequent updates
  7. Make sure you have the expertise and time in-house to do accurate projections. It isn't something you can tack onto your book-keeper if they are not used to doing projections or tack on to your once a month accountancy.  You may also want somebody external to maintain confidentiality.