Trustees’ Week 2025 Day 4 - Building Financial Resilience

Welcome to Day 4 of Trustees’ Week! Today we are looking at Building Financial Resilience.

Having a clear picture of your charity’s financial position is the first step in managing its finances well. It’s an area trustees often feel less confident about, but is an essential part of the role and is key to good governance. The Charity Commission has a Trustee Financial Toolkit available online that provides helpful guidance and resources.

Managing your finances

Trustees need to ensure that their charity’s money is protected. This involves implementing robust procedures for handling money. Money coming into the charity needs to be secure and recorded, and trustees need to be confident they trust the source of the funds. Any money leaving the charity must be for a legitimate purpose, meaning that sufficient checks need to be carried out in advance as part of these procedures.

Charity money must be properly spent in furtherance of the charitable purposes and where the money includes a donation or legacy received by the charity, in accordance with any specific terms or restrictions.

A key element of good financial governance is knowing your financial position, including the charity’s budget, current funds, anticipated income and turnover and likely future expenditure. In addition, keeping accurate financial records is essential.

Keeping good financial records can enable a charity to respond quickly to financial challenges as and when they arise.

Raising finances

There are many ways in which a charity can build up its finances, and the Charity Commission has plenty of guidance for trustees. Some suggestions include:

1. Fundraising

• The charity sector relies on public generosity to keep it functioning. It is important that charity fundraising is carried out in a way that protects their reputation and encourages public trust and confidence in charity generally. This includes following the law and recognise standards/guidance, protecting charities from undue risk, and showing respect for donors, supporters and the public.
• Effective governance will include planning effectively, supervising fundraisers, implementing financial protections, identifying and complying with relevant laws, regulations and standards, and remaining accountable.

2.Selling goods or services

• Charities may carry on trading activities which contribute directly to the furtherance of their charitable objects (primary purpose trading), or (where the purpose is to raise funds for the charity) which do not involve significant risk. It is strongly advised that specialist advice is obtained to understand the different types of trading that a charity can carry out and when using a trading subsidiary is appropriate. Charities should be particularly conscious of undertaking trading activities that are taxable, or tax exempt.

3.Investment

• Any investments of charity funds should be in the best interests of the charity by producing a source of income. Ongoing decisions relating to investments should be approached in the same way, with a view to maximising the value of the investment. As always, trustees must act within their powers and in accordance with their governing document, and it would be a good idea to implement an investment policy. Where a charity is engaged in any form of social investment as opposed to purely financial investment, trustees should ensure that they comply with the Charities (Protection and Social Investment) Act 2016 and associated Charity Commission guidance.
• It may be appropriate to delegate the management of investments to a suitable adviser, ensuring that the terms of this engagement are set out in writing with the trustees retain a suitable level of oversight. Trustees should consult Commission guidance and seek advice where appropriate.

Improving your finances

The Charity Commission has a wealth of resources available to trustees to help review their financial position and how to respond if the charity is in financial difficulty. Understanding a charity’s financial position requires an accurate picture of the charity’s funds. As a minimum, charities should maintain a cashflow forecast and balance sheet.

Good financial governance involves regularly monitoring your charity’s finances. This exercise alone may highlight areas in which costs can be minimised or diverted to support the functioning of the charity. Any potential issues should be addressed promptly. Specialist advice can be obtained to help trustees understand the options available to the charity, which may include collaborating or merging with other similar charities.