Strong networks and relationships are essential to managing revenue when your charity is facing a trying period; this notion fits well within my philosophy of going back to basics when times are uncertain in the financial sense.
For some years now, charities have been faced with financial challenges due to government spending cuts, reputational risk as well as political and legislative changes. In the face of these challenges, the charity sector continues to add positive value to local communities, to businesses, the government and even the world at large.
But if the charity sector is to go on, finance professionals in the sector need to continue being creative in terms of how they think about revenue, which in turn will inform how they manage it. And where better to start than how we define revenue?
We know that in the past, the barter trade - where tangible goods and services were exchanged - operated as a proxy for revenue recognition. The community or individual who had most of what was scarce, the negotiating power and the ability to protect what they accumulated, would be the wealthiest. These truths remain the same today.
If the charity sector continues to add positive value, it logically follows that we hold high amounts of revenue on various levels, and it is our role as finance professionals to spot and harness it.
Looking at the balance sheet, it is evident that net current assets represent how well our relationships with the network of our suppliers, clients, tax authorities and bankers have been managed over time. An old adage says ‘cash is king’: that is so because when the king is in trouble, the kingdom is in trouble. Likewise, a business or an organisation can go into liquidation not because it has a deficit but because its cash is in trouble i.e. it fails to pay its suppliers, to collect what it is owed, or possibly to arrange an adequate overdraft or a loan with its bankers in a timely manner. Think the recent calamity that is Carillion, which had contracts for services with the government and from which we can learn.
Charities’ finance professionals should be able to negotiate payment terms with their suppliers and customers so as to ensure there is enough cash in their bank accounts. But, of course, this is an ongoing process of network and relationships management rather than a function of a few short phone calls when things get tough. There should be a continuous dialogue between charities and their suppliers, customers and bankers which demonstrates that a particular charity is a well-run organisation.
I would suggest that it is good practice for finance professionals to share the charities’ plans with the entities we do business with. That way, a clear, strong message is sent that not only are you proactive, but also others would do well to have your organisation as part of their network. In other words, it is our job to ensure charities are seen as a business partner whose contribution is important. Our network should buy into the charity sector’s desire and need to operate on a going concern basis.
Alongside finance professionals, trustees must also be willing to support the CEOs and senior management teams in taking necessary but managed risks in extending credit terms, collecting cash and/or getting loans or overdrafts when required. However, the potential risk here is that debt financing is seen as a replacement for traditional donations and grants. To mitigate that risk, measures must be put in place to ensure that the debt funds are ring-fenced and only used to generate future, sustainable income streams, since borrowed money whether from suppliers, customers or banks, must be paid back (with interest in the case of loans) within a certain time period.
It is no longer enough for finance professionals to report to the board and keep the books on a daily basis. We must be comfortable with communicating with the charities’ budget holders and staff about how a charity would survive in the short-term and thrive in the long-term. This means the budget holders should be made aware of how important it is to manage relationships with their contacts – not only on an operational basis but on a financial basis too.
Let us not forget the charity sector is valuable and therefore wealthy, we just need to believe this fact and make incremental changes in how we do business. To quote Warren Buffett: It is not necessary to do extraordinary things to get extraordinary results
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