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Understand and communicate your situation

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You can better understand your financial situation once you have an accurate and up-to-date budget and cashflow forecast.

Use this page to interpret and analyse your cash flow forecast and get tips for communicating this to others.

Analyse your updated cashflow forecast

Once you’ve updated your case flow forecast, you can better understand your organisation’s financial future.

Ask yourself these questions:

  • Are you spending enough today to help raise funds in the future? Different income generation activities may involve different costs. They may also take different lengths of time to be successful and receive the cash. Investment in raising funds today may help boost your income in the future. Find out more in the Charity Commission guidance on managing the costs of raising funds.
  • Does the income for activities or projects equal the true delivery cost? Full cost recovery is when we secure the project's full cost (including support costs) from grant funding or a contract for services. Read more about this in our guidance on full cost recovery.
  • Do we have the right level of reserves? Reserves are funds that are freely available to spend on any of the charity's purposes. All charities must have some reserves and cash to deal with unexpected costs. Speak with your treasurer and board about what level of free reserves and contingency funds (money or securities set aside to cover unexpected conditions or losses) they are comfortable with the organisation holding. Read more about this in our guidance on setting your reserves policy.
  • Are any current or recent fundraising campaigns unlikely to achieve their purpose? If you're a charity running a fundraising appeal, check if you have not raised enough money or if broader changes in your circumstances mean you cannot achieve the fundraising appeal's initial purpose. Much will depend on the words used when you ask for donations (appeal wording), but you may be able to spend the donations on your charity's other projects. You should read and follow the Charity Commission guidance on charity fundraising appeals for specific purposes.
  • Do we have designated funds (funds formally set aside by trustees) that could be released? Your trustees may have set aside some funds from the reserves for a particular purpose and consider them 'designated funds.' Trustees can choose to 'undesignate them' by:
    • reducing the level
    • shift them to a different purpose
    • or put them back in general reserves.
  • That may increase the total reserves you have access to. Read more about designated funds in our guidance on charity finance.
  • Could you release any restricted funds? You may have "restricted" money – this means it can only be used within a particular set of restrictions set by the donor. You can find out more in our guidance on restricted funds. You could speak to the donor – like a trust or foundation – about using the funds for a wider purpose. As well as this, you would need Charity Commission authority to change how you can spend restricted funds. Read the Bates Wells guide to unlocking restricted funds to learn more.
  • Are any of our organisation’s financial pressures linked to our trading? Trading is an exchange of goods or services for money. Charities must follow rules about trading. You should find out whether your trading is a core way of delivering your charity's public benefit or whether it contributes indirectly (but isn't just fundraising). There are a range of tax implications from:
    • trading
    • managing risks of deficits in trading.
  • Read our guidance to learn more about the basics of trading in charities.

Understand your financial situation

Your updated cash flow and budget will show you your likely financial situation in the future.

Remember, this is just a forecast and could change. If you make new decisions or change your assumptions, your cashflow forecast will also change.

Here are three basic summary outcomes from your updated cashflow forecast. You can use these summary outcomes to help you decide what action to take. Depending on your predictions, you may need to take more urgent action.

Scenario one: Your cashflow shows you have enough income to cover all your spending. You will make a surplus (income left over when all costs have been met) this year.

You should consider these actions:

  • Continue to monitor any significant changes in your likely income and spending.
  • Review and update your budget and cashflow regularly.
  • If you have not yet done so, extend your cashflow into future years.

Scenario two: You don’t have enough income to cover all your spending. You’ll make a deficit (loss of income) this year. You have reserves to meet this.

You need to consider action to manage your finances. While charities can choose to have a deficit, you should make sure you still have enough reserve funds to:

  • meet expected costs
  • protect yourself against unexpected financial difficulties

You’re able to have a deficit and still have the ability to recover. Though, if you continue in this pattern into the future, you could become insolvent.

You should consider these actions:

Scenario three: You don’t have enough income to cover all your spending. You’ll make a deficit this year. You don’t have reserves to meet this.

You need to consider urgent action to manage your finances. If you carry on as planned, there’s a risk that you may become insolvent.

You should consider these actions:

Communicate and engage others

Budgets and cashflows give us advanced warning of what we think is likely.

They become useful when others understand them and make better choices to carry out or change the prediction. Your board and key team members should understand your cash flow analysis.

All trustees share responsibility for managing your charity's resources responsibly. Even if your organisation has a specialist for financial management, the trustee board is still responsible for overseeing the charity's finances.

  • Present words and numbers: Avoid just sharing a spreadsheet with figures. If possible, write a short report with an overview of the budget and cashflow. Tell people the most important findings and what you want people to do.
  • Present recommendations: Give ideas of what action you may need to take to change this prediction.
  • Explain assumptions and risks: Explain areas of income or spending that are more likely to change.
  • Listen and engage: You may be considering increasing income and changing what you spend money on. Ask your team, including any trade union representatives or volunteers (especially representative groups, should they exist). Discuss how they think you could consider raising income or reducing costs.
  • Make good decisions: We provide a range of tools to help you make good decisions. For ideas of tools to help decision-making, visit our tools to help make good decisions.

This page was last reviewed for accuracy on 30 October 2023

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