Writing a financial strategy

Your organisation’s strategy will look at:

• where are we now?
• where do we want to be?
• how are we going to get there?

The financial strategy is more than just costing that – you need to take a step back and look at the financial implications of 'how are we going to get there?' and the associated risks.

And ask the difficult questions about why you do the different activities in your organisation and tease out what is really important to you. Financial information and trends can be helpful in informing the decision-making. Knowing what an activity costs the organisation can crystallise everyone’s thoughts on how important it is. 

Your finance strategy needs to explain:

• your current business model
• how you expect to fund the future plans
• any other financial implications of the strategy
• what impact the strategy will have on reserves – relating to your reserves policy
• financial risks

You can broadly divide your activities into three types (and probably already do implicitly), according to how they contribute to your strategy, and that then dictates how you will look to fund them.   

• The things that make your organisation what it is, your central charitable activities – you subsidise these from other activities
• Charitable things you do if they pay for themselves – fund from restricted grants or contracts
• Things you do mostly to make money – social enterprise, fundraising

Building your business model further, you need to think about whether income is predictable and whether costs are fixed or flexible for each activity

A particular challenge in charities is that, unlike in business, there is often no direct link between income and expenditure for activities central to their purpose. An increase in demand for a restaurant’s services will mean they have to spend more on food and staff – but should also directly lead to increased income. The same isn’t true of a young carer’s project – if they get better and more people are coming for support and help, it costs more, but any increased income has to come from elsewhere by being better at fundraising and grant applications.  

• Charity Finance Group Essential Charity Finance for Trustees Financial Strategy and Governance pp 19-20 
• Two short articles that give food for thought on financial strategy:
  • Kate Sayer: Seven steps for a successful financial strategy
  • Planning a financial strategy to achieve long-term sustainability