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Guest blog: SAVE Financial Planning

This Guest blog is by Nick Dugdale, International Financial Planning & Analysis Manager at Compassion in World Farming, and treasurer at Attitude is Everything. Nick is undertaking a project looking at developing charities' risk and reserves management (called SAVE Financial Management) and is keen to hear from charities who might find the approach useful.

 

I was delighted to be awarded the Adrian Randall Challenge Prize for excellent, inspiring practice in relation to charity financial planning, risk and reserves management by Charity Finance Group towards the end of 2015. As part of my project with CFG this year, I am looking to investigate the potential benefits and barriers to the Secure, Adaptable, Visionary and Evidence-based (SAVE) financial planning approach that I have developed.

The principles of SAVE and what it would look like

Secure and Visionary? The sector is unique in that many charities’ strategic visions are incredibly powerful and ambitious. Their financial plans, however, can often not reflect this ambition and remain risk averse (or worse, risk ignorant). That is if there is a long term financial plan at all. It is fundamental that charity management understands when and why reserves are planned to be held to secure their financial health. It is critical, however, that they have the confidence to green light and implement impactful projects when they are most needed. Adaptability is key to ensuring that these two concepts do not cause the planning process to fracture. It is incredibly important to culturally acknowledge that plans, opportunities and threats will continuously evolve and emerge. Any financial planning that lacks this understanding will inevitably be met with apathy and sometimes antagonism by decision makers across the organisation. Evidence is a somewhat neglected word outside of a charity’s research and policy team. Both Internal and External, both Historic and Forecast, evidence should be intrinsic to any plan. I have seen this taken to extremes at the expense of action but, with strong leadership, evidence based financial planning is a pursuit that can greatly benefit an organisation. Applying these principles will mean that your charity’s financial plans:

  • Show management the security of their funding,
  • Are agile and adaptable,
  • Reflect the charity’s strategic vision, and
  • Are evidence based.

The barriers that charities might face in implementing SAVE

When looking at the barriers that charities might face, it is important to ask what is unique about charity financial planning as opposed to financial planning in other sectors. I would argue that the main barrier and distinguishing factor for charities comes down to governance. Charities do not have a market value and their strategies and approaches to financial management and risk are not evaluated openly by external stakeholders as robustly as in the commercial sector. In fact, most stakeholders show little understanding of the risks that charities are taking which is often only exposed in cases of financial mismanagement. This lack of robust external scrutiny can allow the unwarranted longevity of poor performing charities. This is incredibly difficult for Trustee Boards to manage with their intrinsically risk averse stewardship role. The UK charity sector is holding onto enough reserves to fund a whole year’s worth of expenditure and has maintained relatively predictable, low risk, long term funding even since the global financial crisis. The critical governance question is whether your planned reserves are necessary to achieving the aims and objectives of your charity or if they actually inhibit them.

A call for action

So why is this SAVE financial planning approach relevant across the sector today? There has been significant challenges and scrutiny facing the Charity sector and, in particular, Charity Commission research has previously highlighted that there is a lack of understanding and application of good reserves management and has more recently updated their guidance on reserves. Guidance that has, however, been challenged by financial leaders within the sector. There appears to be gaps in the knowledge base regarding the strategic use and value added by good reserves management and financial planning in the charity sector. This includes analysis into whether the risks and commitments highlighted by charities to justify their holding of reserves are effective risk mitigation mechanisms at all. Misunderstanding and misinterpretation of the terminology regarding reserves management is common and this makes broad sector analysis difficult. It also means the application and use varies. My hope is that my investigation will look deeply into a small cross section of charities to highlight the dysfunctions these varied interpretations of reserves can cause and be a call for action for broader research into financial planning, risk reserves management. I would love to know how a SAVE financial planning approach could potentially improve staff morale, incentivise income growth, make your charity more impactful and benefit other stakeholder groups. If you would like to have a conversation and possibly be included in a case study for this project then please get in touch. I can be contacted on nick.dugdale@ciwf.org.uk.

This post was last reviewed on 27 February 2019 at 16:03
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