Organisational resilience

“Organisational resilience is the ability of an organisation to anticipate, prepare for, respond and adapt to incremental change and sudden disruptions in order to survive and prosper.”

British Standards Institution and Cranfield School of Management

Financial resilience

When it comes to financial resilience, this means:

• anticipating with forecasting our most possible financial future
• preparing by building reserves or managing low reserves with flexible costs
• adapting costs to ensure full cost recovery and refining overarching business models
• responding in good time with clear and simple forward looking indicators

However

We need to do the above in addition to the usual basics of building financial sustainability:

1. calculate the full costs for each individual activity
2. diversify income so we are not reliant on one single income stream
3. generate an unrestricted surplus to build reserves

A quick note on (3). Not all small charities can build reserves. That's ok. Our job then is to make sure we determine and manage our financial risks. You can do a lot with a few charts and good risk management!

It helps to remember that financial sustainability and financial resilience are not the same

Financial sustainability and financial resilience are two different things. Financial sustainability is what we are. It is - largely - looking in and down and all about the numbers. It is about growth.

Financial resilience is what we do. It is - largely - about looking up and out and all about taking good decisions in time. It is about being responsive. This might mean expansion but it might mean contraction. Contracting now to expand again later.  What is important is making sure that whatever we do we do in good time so that we optimise our financial opportunities and manage our financial risks in a good, controlled manner.

In our experience, not all small charities can be financially sustainable. Many will always be reliant on one - often restricted - income source - and many will find it difficult to build reserves.

The good news is that all small charities can be financially resilient. We can all anticipate and prepare our organisations so that we can adapt and respond to change.

Which means that our financial reporting needs to contain a report like this so that we can track our financial sustainability

We need to be able to track each grant or each activity separately. This way we can also track whether our activities are fully funded and whether our reserves are going up or going down.

And, we might also need a report like this that helps build our financial resilience by looking forwards to our likely financial future.

This is especially true, if we are a bit larger and have several restricted funds in the mix, and even more so if we have an element of financial precarity. Looking up and looking out to the end of the year, and, possibly, a next year as well helps us know the shape of things to come. This can buy us valuable time when it comes to managing financial uncertainty. 

And whatever our size, having some simple charts in our financial reporting can act as our compass through the financial mists ahead. If we track the past and the most reasonable version(s) of the future ahead, we can help ensure we respond in good time to financial difficulty. For us, this looks something like this.

Next steps

A good finance system will tell us when we have a problem. A really good one will buy us time to fix it. Building financial resilience can start with developing the financial reporting:

• Is your budget structured so that each activity/grant has a dedicated column for income and expenditure? Do you apportion a fair share of overheads to each of your grants/activities? 

• Does each grant have a dedicated column showing what has come in and what has gone out and how much is left?

• Does your unrestricted fund have a dedicated column showing whether you have an unrestricted surplus which means reserves are going up or an unrestricted deficit which means reserves are going down?

• Do you have a column that shows you where you expect to be at year end? And the year after?

• Do you have some simple charts showing some of the key finance trends over time? A couple of charts showing actual v target reserves and income and expenditure over time can really help to alert us to risks, especially when they include our forecast figures.

And also by:

• Reviewing your  business model and exploring options to generate unrestricted income
• Reviewing your reserves policy and making sure it's up to date
• Drafting a finance strategy to root your fundraising activities and service delivery in a sound financial plan.

Not sure where to start or need help with any of the above? Check out our small charity finance list for some great resources or book in a mentoring session and we can guide you through it all.