CC12 updated guidance:

Charity financial management

Economic uncertainty remains an issue in the charity sector in 2025. October 2024’s Autumn Budget is likely to impact the public and continue to make finances tight for many; it will certainly make the fundraising environment challenging for the foreseeable future. It’s difficult to predict how future budgets and policies will affect the charity sector, however managing cash balances is of critical importance to charities of all sizes.

The financial failure of Kids Company (which had total income streams of approximately £23m and slightly fewer than 500 employees at its peak) serves as a useful reminder that even growing, larger charities need to regularly monitor cash flow.

Updated guidance

The Charity Commission published updated guidance ‘CC12 – Improving your charity’s finances’ in September 2024. The revisions help trustees understand how they can improve the financial position of their charity, and the guidance is now split into three sections:

1. Managing your charity’s finances

This section highlights the importance of trustee involvement in the financial management process, as trustees are ultimately responsible for financial management and are required to oversee charities’ finances even if the day-to-day management is delegated to an executive team. Trustees require timely, quality financial information to enable informed decisions to be made.

Regular monitoring is important and will increase the chances of detecting any issues early, enabling actions to be implemented before a situation potentially worsens. The Charity Commission has a 15-question guide to help trustees review financial performance and make effective decisions. Do you as trustees have the information you need on finances? Is it timely, accurate and robust with a summary which explains any variances in sufficient detail to understand if they are permanent, and potential effects on the forecast. Are assumptions in the forecast understood, particularly on income which is being estimated or predicted and currently unsecured?

2. Check if your charity is in financial difficulties

The second section delves further into financial management, listing important considerations for assessing potential financial issues, i.e. regular monitoring the accuracy of:

  • Current cash balances
  • Cash flow forecasts
  • Current assets/liability totals

The guidance also includes a checklist to help trustees determine if there are risks of insolvency. If insolvency appears to be a likely eventuality, charities may choose to continue at a reduced scale, merge with another charity, or close. Trustees will need to follow the required legal processes if a decision is made to close a charity. Think about your cash and can you pay your creditors as they fall due? Can you pay your staff? Do you know what cash is coming and when? Does the forecast show really low levels of cash at any point, and if so, how will this be rectified? Are you monitoring restricted funds and their balances to ensure they are not funding their general activity?

3. Actions you can take to improve your charity’s finances

The final section summarises tips for charities which are struggling but considered solvent, and CC12 provides a few different courses of action trustees can implement:

  • Minimising costs – e.g. ceasing any non-essential outgoings, reducing administrative costs.
  • Looking for additional sources of income – e.g. applying for grants, liaising with charity’s supporters.
  • Reviewing your charity’s funds and assets – e.g. using your charity’s reserves, selling some of the charity’s assets.

These pointers from CC12 are fundamental and cover areas that all trustees should be aware of in order to ensure that the tough actions are taken early enough. Burying your head in the sand and hoping your finances will improve on their own rather than managing the situation is often where things go wrong. Minimising costs can be put off and may lead to more drastic action being required at a later stage. Running a charity is not an easy process as your income is not guaranteed. The challenge is often a tricky balancing act of understanding when that income is not going to arrive and action must be taken, as opposed to when it is likely to come in and operations can continue as planned. Often, we have seen a reticence to accept the clear warning signs and apply the brakes early enough. Ultimately that could save a charity and give them time to manage their finances rather than sit back and just wait for the cash to run out.

Further considerations

Implementing effective preventative measures at board level is an example of effective governance and should reduce the likelihood of charities falling into future financial difficulties. Such policies may include:

  • Ensuring financial management is considered in all trustee meetings.
  • Ensuring trustees have access to timely, accurate financial information ahead of meetings.
  • Ensuring management are regularly reporting on actual results compared to forecasts, providing particular focus on adverse variances incurred.
  • Regularly reviewing and updating the charity’s risk register where required, whilst considering Charity Commission guidance on risk management (CC26).
  • Ensuring reserves policies are regularly reviewed and continuing to be fit for purpose. This includes considering unrestricted free reserves levels and comparing to actuals. ‘CC19 Charity reserves: building resilience’ provides further details on the importance of governing charity reserves.

Final thoughts

Trustees are encouraged to digest the updated CC12 guidance on improving charity finances. Effective financial management is currently of significant importance, given the pressures the charity sector is experiencing, with rising costs, increased demand for services, decreased donations and increased competition for funding.

If you would like to discuss any of the issues raised above, please contact Simon using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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