FP&A for charities

In this episode, we are going to share insights on how finance teams have used a dedicated FP&A tool for enhanced planning & budgeting. We’re going to focus in our charity sector specialism, where the challenges of FP&A can be acute.

The Scenario

So, you're a finance business partner in a charity, and you’ve got a pretty crucial job. You’re there to support the organisation and its budget holders, but it’s not just about crunching numbers. It’s about making sure that every dollar, pound, or euro is being used as effectively as possible to support the charity’s mission. And that can be a tall order.

Challenges

• Unpredictability of funding:

  One of the biggest challenges is dealing with the unpredictability of funding. Charities often rely on donations, grants, and fundraising events. These sources can be pretty unpredictable. You might have a year with a big donation boost, and the next year, things could be tight. This variability makes it really tough to plan long-term.

• Restricted funds:

  Then there’s the issue of restricted funds. Many donors give money that’s earmarked for specific projects. This is great because it supports important initiatives, but it can also tie your hands. You might have plenty of funds for one project but be struggling to cover the day-to-day operational costs. Balancing these restricted and unrestricted funds is a constant juggle.

• Non-jargon approach:

  As a finance business partner, you also have to translate financial jargon into something that makes sense to everyone else. Budget holders in a charity are often passionate about their programs but might not have a finance background. It’s your job to explain why they can’t always get the funding they want or why certain costs need to be controlled, all without dampening their enthusiasm.

• Aligning financial planning with strategic goals:

  Another challenge is aligning financial planning with the charity’s strategic goals. This means working closely with budget holders to understand their needs and priorities and then figuring out how to allocate resources in a way that supports the overall mission. Sometimes this involves some tough conversations about scaling back or delaying projects.

• Compliance and reporting:

  You also have to keep an eye on compliance and reporting. Charities are often under scrutiny to ensure that funds are used appropriately, which means there’s a lot of regulatory and reporting requirements to meet. This can be especially challenging when trying to innovate or take risks on new projects.

• The human element:

  And let’s not forget about the human element. People working in charities are often deeply committed to the cause, which is fantastic, but it can also mean emotions run high when funding is tight or when tough financial decisions need to be made. Navigating these conversations with empathy and understanding is key.

• The challenge of technology:

  Finally, technology can be both a challenge and a blessing. New financial systems and tools can provide better insights and efficiencies, but implementing them can be costly and time-consuming. Training staff to use these tools effectively is another hurdle.

Ways to Mitigate the Challenges

Unpredictability of Funding

Unpredictability of funding is out of your control. However, the following mitigants can be used:

• ‘What if’ Scenario Plan in a structured way. Think about the level of scenario planning across the organisation. And also how aligned modelling is. Ultimately, any scenario planning will show what the assumptions create. So think about systemising the business rules being used to plan.
• Meet the needs of funders. A strong Planning and Budgeting tool can assist you with meeting the needs of your funders. It helps you automatically get your numbers into the format that works best for them, that may be different to your internal reporting. And without everything be prepared all the time on excel spreadsheets. We call this ‘alternate ‘hierarchy’.

Restricted Fund

This again is a challenge that is outside your control. The following mitigants can be used:

• Transactional Finance System 'Segment' that makes it easy to capture and report by restricted/unrestricted.
• Support initiatives that assist with international charity financial reporting standardisation. Humentum and CIPD are both organisations deeply involved in these initiatives. Simplification and codification of financial standards is designed to give funders more comfort with giving their beneficiaries based on a ‘unrestricted’ basis, allowing greater flexibility. https://www.cipfa.org/policy-and-guidance/standards/international-financial-reporting-for-non-profit-organisations

Non-Jargon Approach

Engage with a smarter, friendlier, more sleeves rolled up and jargon free way to solve problems. If new software is involved, make sure that the people supporting the roll out have the right culture and can demonstrate it to you. Its really not complicated: its about people that enjoy helping others.

Aligning Financial Planning with Strategic Goals

The key mitigant to this challenge is to have a single view of the truth. If the finance system is separate from multiple other systems and spreadsheets, it is almost impossible to keep financial planning aligned with strategic goals. And the larger the organisation, the greater the challenge becomes. Single view of the truth is achieved by:

• Single data source transactional finance system. Even if international, have one single data source across all subsidiaries.

• Seamless integration to Planning & Budgeting module. Ensure that there is an automated, easy to install link from the transactional finance system to your Planning & Budgeting.

• Sync not just integration. Any changes in the transactional finance system should seamlessly move across to the planning & budgeting system.

Compliance and Reporting

An audit trail is often helpful, including around version control and approval process of budget changes. A Budgeting and Planning tool will include this.

The Human Element

A single view of the truth provides the systems foundation for conversations based around empathy and understanding. This combines with a willingness to act to support the individual, taking into consideration others. If new software is involved, make sure that the people supporting the roll out have the right culture and can demonstrate it to you.

The Challenge of Technology

Technology is a challenge and a blessing.

In the case of FP&A, consider the following:

• Key ways new technology delivers benefits and efficiencies:
• Automated funder reporting in completely different formats, without manual spreadsheet preparation (‘alternate hierarchy’)
• Automated alignment of restricted/unrestricted classification and SORP reporting
• Single data source, single view of the truth across the organisation.
• System audit trail, unlike spreadsheets.
• Automated sync between transactional finance system and planning & budgeting. Changes to metadata (departments, chart of accounts etc) flow through to all reporting without manual intervention.

Key ways to reduce the risks inherent in investing and rolling out new technology:

• Pre-built integration
• Pre-built sync
• Pre-built reports
• Pre-built tools (eg driver based planning rules, trend based planning rules)
• Industry specialisation
• More human culture in any implementation partner, with sector specialism:
  1. Named individuals
  2. Experience fit
  3. Culture of being willing to act to support.
  4. Culture of personal accountability
  5. How do you know? Meet them!

Author: Iain Goldmann, Chartered Fellow of CIPD, leads Cloud Doing Good, Oracle NetSuite’s social impact specialist partner for cloud accounting and charity management software. With over 15 years’ experience working with Oracle NetSuite, he is passionate about simplifying finance as a more human NetSuite solution provider.