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 our business models
• responding in good time with clear and simple forward looking indicators

Financial resilience is not the same as financial sustainability



Financial sustainability and financial resilience are two different things. Financial sustainability is when income is stable or growing. Financial resilience is being able to respond to change. That might mean expanding. It might also mean contracting now in order to expand agaon later.

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 and maintain 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.

Anticipating | We need to look forward

What does our financial future look like? Will we have enough cash when we need it? What does our income and expenditure look like over the next few years? Critically, what is the most likely financial future when it comes to our reserves?

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. 

Preparing | Building and maintaining a rainy day fund

Reserves provide a vital shock absorber which help us overcome unexpected challenges. The mini bus suddenly breaks down? No problem, we have funds to fix it.

Reserves also help buy us valuable time to manage change which we know is coming. We want to maintain a service - and retain that fantastic member of staff - beyond the life of the grant which is ending soon? No problem, we have funds to cover costs while we hear about the new grant.

Reserves are not always simply what we have in the bank. They are only the unrestricted cash that we have. And with that being so very hard to come by we need to be very thoughtful about how much we need and very clear about how we actually have and very intentional on how to build up or spend down when those two figures are different.

Setting a target range - a minimum to cover essential project or organisational closure costs for example, and a maximum toalso provide for other risks - can be very a much easier way to manage reserves rather than, say, setting a policy where we need 3 months exactly.

Adapting | Making sure our activities are affordable and we consider all our options

How good are we at costing? When we set budgets, do we make sure we capture the full cost of each activity? The direct cost and a fair share of indirect costs? Do we fundraise on this basis? Do we knowingly take on grants for projects where the grant doesn't cover the full cost? Can we afford to top it up without seriously compromising our reserves - and overall financial position - over the longer term?

Full cost recovery - budgeting and securing the full cost of activities - is important for every charity. It is ok to subsidise some activities with our unrestricted income or reserves but we need to make sure that our subsidies are (a) intentional and not accidental and (b) affordable over the longer term.

If we are unsure of the best course of action, scenarios help. Modelling what business as usual and what a different service offering might look like helps us consider - and possibly implement - a more financially viable future.



Responding | Don't be a boiling frog

In our experience, small charities are pretty good at anticipating, preparing for and adapting to change. Often, where we fall down is in responding. We leave it way too late and we often box ourselves into a corner with no no other choice than to contract quickly. Or worse, close chaotically. This is never ok.

Having some simple charts that show what good looks like and how close or how far we are from that both now and in the future - our actual v our target reserve for example - can help give a clear steer on when we are going to run into troubles.

A good finance system will tell us when we have a problem and a really good finance system will buy us valuable time to fix it. Indicators are an essential part of a really good finance system. 

Financial Resilience | An active investment in the systems

We all have an iceberg. Something on our horizon that threatens to take us off course if we don't set sail around it.

Investing time in building some simple tools like the ones above can make small charities significantly more resilient, even when fundraising is challenging. And they are much easier than you might think.

Where to start

Anticipate with a budget for this year and next, and a cashflow forecast

Prepare by reviewing your reserves policy and monitoring it monthly

Adapt with a review of your full cost recovery and internal subsidies

Respond with some simple charts that give you a monthly track of your key risks

Interested in exploring any of the in more depth? Fantastic! Check out our small charity finance list for some great resources or book onto one of our low cost finance sessions.