Jessie J once sang, "It's not about the money, money, money, We don't need your money, money, money, We just wanna make the world dance, Forget about the price tag."
This could be used to describe many charities, certainly the part about making the world dance with their delivery of aims. However, in the current climate, it is actually very much about the money…
I have written extensively about the difficulties charities face in delivering their objectives—if you haven't already, I encourage you to explore these insights on my profile. One pressing issue that stands out today is the lack of clarity on how much activities really costs.
Historically, many charities had limited information and existed in an almost steady state with a consistent income stream from regular donations or annual fundraisers and predictable expenses. At the end of the year, they would prepare their accounts, usually finding they had spent most of their income. Trustees would then set a budget for the next year, expecting similar outputs.
However, with the current squeeze on spending, particularly in the public sector, the number of outputs being required to be delivered is often rising significantly with little, if any, increase in funding. Charities will often feel obligated to continue to deliver to an increased number of users and will regularly use their reserves to do so. On a one off basis, this isn’t the end of the world and arguably, this is one of the reasons charities should retain a prudent level of reserve. However, this simply isn’t sustainable for the long term. So, what should charities need to do?
The importance of real-time accounting
First, it's crucial to understand the actual cost per unit of output. If you don’t know this already, this needs to be an urgent action point for the board and management. It goes without saying that to be able to answer this, the accounting records of the charity need to be as up to date as possible. The historical “look back” approach to accounts will not be helpful here - unless you have just completed your annual accounts! Thankfully, there are a whole range of cloud based solutions which will help any charity to get accounts record keeping both streamlined and in real time so that at any given point, there is certainty on what costs have been incurred.
Determining cost per output
Once records are up to date, the next step is to undertake allocations on a reasonable basis to determine the cost per output. You’ll need to differentiate between fixed costs (like rent and insurance) that don’t change with output and variable costs that increase with more activity.
Assessing your charity’s funding needs
With this information, alongside the budgeted overheads, you can estimate the necessary income and assess if current funding levels are adequate. For charities funded by ad hoc donations and fundraising, this helps gauge whether the planned activities for the year are sufficient, or if additional activities are needed to sustain your charity. For those receiving contributions for output, such as local authority funding, knowing your cost per output give a credible tool to push back and set out the need for additional funding if there is to be additional output.
For charities that are not currently doing this, the task may seem daunting, but with the help of an accountant, it can be simplified and streamlined. Your usual UHY adviser would be only too pleased to assist with this.
The benefits of knowing are simply too great to be ignored in the current climate – if you don’t know what your cost is, you can not ensure that the correct value is being received and that the fundraising activities are sufficient. Whilst this may sound very commercial and be at odds with the values of charities, it is vital that charities adopt more commercial approaches to ensure the price tag is right for the output, that fund raising activities are sufficient and that the charity moves towards being sustainable.
The next step
At UHY we have a range of specialists who can assist you in moving to real-time, cloud-based accounting, preparing budgets, forecasts and cost analyses to ensure your charity understands its funding needs.
Please get in touch with David Allum on d.allum@uhy-uk.com or your usual UHY adviser if we can help you ensure you know your price tag.
