Trustees and Charity Finance: three lessons

I've been lucky enough to be a trustee of various charities for more than twenty years and for almost half that time I have had the role of treasurer.

When I first came across charity accounts I found them very hard to understand.  They feel much less intuitive than private sector or public sector accounts.  I blame the bizarre distinction between unrestricted and restricted income which has lead me to ask many silly questions and make many mistakes. 

So for trustees looking to avoid the same fate here are three hard won lessons:

First, manage by cashflow.  Ask your executive to produce cashflow forecasts and update them every quarter or whenever you meet.  Every quarter you will be able to see how much money you have in your bank account and how close this was to the forecast.  It is much easier for everyone to get to grips with bank account balances than with management accounts or indeed audited accounts.

Second, monitor new income.  If your charity spends £1.2m annually, then you will need to bring in an average of £100,000 of new money every month or else at some point the engine will splutter.  Monitoring this isn't as easy as it sounds: often new money comes in big lumps, and the accounting practices for restricted income make it easy to double count multi-year projects.  So be sure to have it as a specific number every meeting, even if sometimes the number is zero.

Third, understand the plumbing (at least once).  At some point, ideally before you become a trustee, take the time to sit down with the finance manager to run through in detail how information about money is collected, presented and checked.  This will (hopefully) give you confidence that the numbers you see are accurate and give the finance manager confidence that you're paying proper attention.

And of course at all times you should feel as if you're working with rather than against the executive.  A shared and clear understanding of the finances will help achieve this and make it easier to focus on whatever charitable outcomes you are trying to achieve.