Financial and operational fitness is one of six key characteristics, that through our work and research with charities, we have identified as pivotal to an organisation’s potential to be resilient.
The ability to sustain and finance your charity’s operations will help you weather financial shocks, adapt to external changes and deliver your mission over the long-term.
Every social purpose organisation wants to be impactful, and having the right people in the right roles, supported by a clear understanding of your resources and how they are being used, will help you boost the impact you make.
What makes your charity financially and operationally fit?
Based on our work with charities, we have identified some of the features that financially resilient organisations have in common. These include:
- Strategic planning capacity
- Sufficient and flexible funding, including a range of secure income streams
- Effective fundraising and donor retention approaches
- Efficient budget management
- Strong governance and financial oversight
- Robust and proportional financial reserves to cushion against unexpected events.
Taken together, these factors provide the insights you need to have an informed view of your income and operations – so you can plan for the future, respond with agility to unforeseen challenges and difficult decisions and crucially spot and take advantage of new opportunities.
Operational fitness, which is integral to financial fitness, equips organisations to make sure they are making the best use of the resources they have. This means your organisation will have a well-defined mission that aligns with your long-term strategic goals, the right technological infrastructure, flexible operational structures, skilled leadership, robust governance, and a capable and motivated workforce.
Five steps to building financial and operational strength
Yet while many charities understand what it takes, it can often be a struggle to know where they can begin to make those changes in their own organisation. Here is a clear path to get you started.
1. Collaborate for success
To begin, pull in the wider team, board / trustees and stakeholders. You may need to take the time to assess and understand what is working well and what could be strengthened from an operational, financial and decision-making perspective.
Building a strong, united team is essential to designing the most effective organisation to deliver the impact you want. Stay open to reflection, feedback and change. Then take a step back to consider what changes you could start to make.
2. Start with a breakdown of your finances
Take a close look at the financial information your organisation currently produces and ask yourself some critical questions:
- Are the financials historic or forward looking?
- What do the financials reveal and more importantly what do I want to know?
- Are my organisation’s income sources diverse or are we exposed to risks such as economic downturns or changes in donor priorities?
When you understand your finances and can comfortably discuss them, it inspires confidence within your team and beyond. A clear financial picture also opens up more opportunities for funding and therefore allowing your organisation to reach more in the communities you serve..
3. Evaluate your operations
On the operational side, start with a blank sheet of paper and outline what roles, responsibilities and resources are needed to deliver the impact you want. Compare this this with your current operation to identify where things can be improved. This will allow you to ensure resources are used effectively to achieve your mission.
4. Be open and transparent
Going through periods of change can be unsettling, so it is important to communicate openly and involve others in the thought process. Ask each team member to identify one thing, that is within the organisation’s control, that they would change in order to increase overall impact.
Many organisations hesitate to share financial information for fear it might cause worry or raise questions. However, sharing high-level information regularly allows everyone to understand the context in which the organisation is operating and fosters a sense of ownership.
5. Remember small steps can make a big difference
Start small, incremental improvements are just as effective in creating a widespread change. By adding simple elements such as words, visuals and a forward-looking view to your financial reports, you will end up asking questions that can inform you on how you want to develop this information going forward.
Building your charity’s resilience
This is one of a series of six articles that give charity leaders ideas on how to build the resilience of their organisations.
Read the next article on evidencing impact.