Issue 26: Financial literacy
This issue focuses on improving financial literacy amongst charity trustees and senior leaders. It’s an important subject — in this email we’ll highlight a few great resources for taking practical steps to address lack of financial knowledge — as it is vital as part of managing a charity responsibly and prudently.
We’ll also look at some of the risks to manage when fundraising and highlight an article that demystifies investment crowdfunding as a fundraising method.
What’s in this issue?
- Addressing financial literacy among charity trustees and leaders
- Access Insurance’s guide to managing the risks of charity fundraising
- ACEVO’s article on investment crowdfunding for charities
RESOURCE
Addressing financial literacy among charity trustees and leaders
Charity trustees play a crucial role in the governance and financial management of charities. However, many trustees often lack the necessary financial literacy to effectively fulfil their responsibilities. Three insightful articles from Pilotlight, Getting on Board, and Sage provide a deeper look at the importance of training, support, and education for charity trustees, highlighting strategies to empower them in their roles. They highlight a few points:
The importance of training and support
According to Pilotlight, well-equipped and supported trustees can significantly enhance the impact and sustainability of charitable organisations. Their article emphasises the need for training materials, toolkits, and expert advice to help trustees navigate legal complexities and contribute meaningfully to strategic decision-making. Additionally, effective support structures, including succession planning, are vital for maintaining organisational stability and effectiveness. This involves identifying and nurturing potential future trustees to create a pipeline of capable individuals committed to the charity’s mission.
Addressing financial illiteracy
Getting on Board highlights a common issue: many charity trustees are often clueless about finances. The article stresses that trustees cannot delegate their financial responsibilities and must engage with the charity’s financial matters. It suggests providing finance training for all trustees and ensuring that financial information is presented clearly and linked to the charity’s activities. This approach helps trustees overcome any anxiety about discussing finances and encourages them to ask insightful questions, even if they are not finance experts.
Steps to educate and empower trustees
Sage’s article outlines five essential steps to help trustees take an active role in the financial management of their charities. These steps include assessing the trustees’ current level of financial knowledge, explaining finance terminology, detailing significant income streams, and mapping management accounts to statutory accounts. The article also looks at the importance of strong financial governance and the personal liability trustees face if they fail to meet their obligations.
👉 The crucial role of training and support for charity trustees — Pilotlight
👉 Why are so many charity trustees clueless about finances? — Getting on Board
👉 Finance 101: 5 steps for non-profit organisations to educate and empower trustees — Sage
Resource
This is a whitepaper by Sage Foundation and Charity Digital that looks much deeper at the topic with results of a survey and recommendations for addressing financial literacy.
👉 Organisational Financial Literacy and UK Non-Profit Sustainability
RESOURCE
Managing the risks of charity fundraising
This guide by Access Insurance highlights the importance of risk management for charity leaders when diversifying their fundraising efforts. It covers several key risk management considerations in the context of fundraising:
Strategic and financial risks
- Evaluate risks and strategic benefits of various fundraising tactics like legacy giving, events, mailshots, SMS appeals, etc.
- Conduct risk assessments and have contingency plans in place.
Regulatory risks
- Ensure compliance with fundraising regulations, data protection laws, and safeguarding requirements.
- Provide proper training to staff and volunteers.
Reputational risks
- Develop a crisis management and communications plan to address potential reputational damage promptly.
Operational risks
- Implement proper cash handling procedures when collecting funds from the public.
- Manage cyber risks by securing systems and data.
- Have measures in place to prevent fraud.
Insurance
- Consider insurance to transfer risks associated with fundraising activities.
- Consider Trustees, Directors & Officers Insurance for financial protection against wrongful acts claims.
By proactively managing these risks, charity leaders can safeguard their organisation’s reputation, resources, and ability to carry out their mission effectively through fundraising initiatives.
RESOURCE
Investment crowdfunding for charities
Now thinking about financial literacy — this article by ACEVO and written by Triodos Bank UK provides valuable insights for charity leaders on leveraging crowdfunding. The article explores how investment crowdfunding allows charities to raise funds by offering bonds to investors, who receive interest payments over an agreed period. It looks at some of the features of it such as:
- It eliminates the need for collateral assets typically required for traditional loans.
- It enables charities to engage with a new audience of potential supporters and raise awareness about their work among a community of investors. For example, the crowdfunding platform mentioned has thousands of registered users, and charity bonds are often promoted through PR campaigns.
- Some investors may continue their association with the charity beyond the bond’s lifespan, potentially becoming long-term donors after their debt is repaid.
The article cites successful examples, such as a £3 million crowdfunding bond that helped the Robin Hood Group YMCA create a new community facility, and a £1.5 million bond for the London Early Years Foundation.
Resources
The Charity Finance Group has some great resources on a whole range of finance, fundraising and investment issues.
Embrace finance also has a whole list of resources for small charities.
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