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Finance Basics

Financial oversight is part of your organisation’s good governance, but it doesn't have to be painful.

Authored by:

iClick2Learn Team

Table of Contents

Introduction

Are you on a not-for-profit committee and feeling overwhelmed with all the financial statements and reports? Are you wondering why you need to read budgets and discuss financial issues – isn’t that the treasurer’s job?

Great questions.

It’s the treasurer’s job to keep all financial records, collate that information into reports, and make suggestions to the committee. It’s the committee’s obligation as a whole, to discuss and make financial decisions.

Financial oversight is part of your organisation’s good governance. As a committee member, you’re required to participate in this process. But it doesn’t have to be painful. In this article, we’ll discuss finance basics for not-for-profit committees.

Budgets

A budget simply outlines your income (money coming into the organisation) and your expenses (money going out of the organisation). Ideally, you want more income than expenses.

Having more income than expenses doesn’t just happen. You need to plan ahead, and this is done through a budget.

You can list your fixed costs such as rent, utilities, wages, administrative fees, insurance, and any forecasted expenses.

And then list expected income such as membership fees, grants, fundraisers.

If your expenses are higher than your income, you will need to try and cut costs or increase your income.

You can make an annual budget for the year, as well as budget for individual events and fundraisers.

Financial Basics

Project Costs

If your organisation runs workshops, events, or programs, you should create a budget for each project. A budget will help you make an informed decision if you can afford to hold that particular event, or if you need to apply for additional funding or grants.

Maybe you will need to adjust the length or type of event to fit in with the budget.

Diverse Funding Sources

It’s a good idea to have a diverse range of funding sources. What this means is, don’t just rely on one stream of income, as if it dries up, you’ll have no income at all.

Possible sources of income for not-for-profits include:

  • Membership fees
  • Donations
  • Grants
  • Workshop and event tickets
  • Fundraisers
  • Sponsorships
  • Sale of goods
  • Interest earned bank accounts/investments
  • Royalties and license fees

Cash Flow

Cash flow refers to money on hand, or cash in the bank. It’s important for all committees to know current cash flow, to help make informed decisions about purchasing.

It’s also important to make sure you have enough cash on hand to pay upcoming bills, such as rent and electricity. You also need to be aware of annual expenses such as insurance or administrative fees.

Your treasurer will be able to tell you the current cash flow status of your organisation.

Financial Literacy

Although you’re not expected to be an accountant or financial expert, you will need to understand some basic financial terms.

A list of common financial terms and their meaning are available here: Common Financial Terms 

Financial Responsibility

Remember, making financial decisions about how your organisation operates, is the responsibility of the committee as whole. Good research, communication, and up to date financial figures, are essential to making informed financial decisions.

Operating Reserves

In life, there are always unexpected expenses. It’s the same in organisations. You won’t be able to forecast every unexpected event or expense, but you should prepare as best you can.

It’s not just the negative you should prepare for, it’s the positive as well. Does your organisation have a milestone or anniversary coming up that you want to celebrate. You will need to have money in reserve for such events.

Review past budgets and reports, to help work out how much money you should keep in reserve.

Accountability and Transparency

When requested, organisations may be required to open their books to members, stakeholders or the public. Your organisation also has annual financial reporting obligations.Your reporting and legal obligations will depend on the structure and size of your organisation.

You can read more about the legal structure of your organisation here: ATO – Overview of Legal Structures

Trust and Audits

Members, donors, and your community, trust you will handle their money ethically and with integrity. It’s important to maintain clear and accurate books, and operate with transparency, to build trust around your organisations.

This is why it’s not solely the treasurer’s job to look after the finances. Each member of the committee, has the right, and the responsibility, to keep any eye on the finances.

Depending on the structure and size of your organisation you may be required to have an annual audit. Audits help build trust and confidence, by having an independent 3rd party inspect your accounts.

You should have an audit when required by law, if there is suspicion of fraud, or when your committee votes for one.

Everything’s Connected

Financial knowledge and management is connected to every aspect of running a successful organisation. From good governance, to operational success, through to building respect and trust within the community.

Even if you’re not the treasurer, having some basic financial knowledge and understanding, will improve your contribution to the organisation.

Conclusion

The treasurer plays an important role in maintaining financial records and creating budgets and reports. But is the committee as a whole, who is responsible for making financial decisions.

Financial reports and terms can seem daunting at first. But your other committee members and treasurer will be able to help you understand the basics.

If in doubt about your finances, seek the help of a professional.

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