Effective financial management is increasingly important for Third Sector organisations and the task is becoming more challenging. The economic climate has impacted social need; as a result demand from both new and existing Third Sector service users has grown. At the same time for many, income streams are under greater pressure due to cuts in public spending and a more challenging fundraising environment. In order to meet these challenges successfully Third Sector organisations need to ensure costs are tightly managed, review the efficiency of financial management processes, and recover the full cost of their work from funders.
Finance Count 2014 involved benchmarking financial management at 57 large and medium Third Sector organisations, with a median income of £13.5 million. The aims were to build a picture of financial management in the Third Sector and to support organisations in developing further their financial management policies and practices through enabling organisations to compare their performance with their selected peers and to pinpoint their strengths and areas for development. Some of the key findings from the study are outlined below:
Recruiting regular donors or members can be expensive and it is important to monitor how cost-effective this acquisition is. The median cost of acquiring a new regular donor or member as a percentage of the average income from each regular donor or member during the expected life of the financial relationship is 16%. This has increased significantly since the 2012 Finance Count benchmarking study when the median figure was 4%.
Gift Aid recovery
Gift Aid is an excellent way for charities to maximise their donations. However, the median recovery rate for Gift Aid claimed as a percentage of all Gift Aid that could have been claimed is 59% (out of a theoretical maximum of 100%). This has increased since 2012 (45%). Nonetheless, there may be scope for organisations to further increase the amount of Gift Aid that they claim.
The median expenditure on service agreements or contracts as a percentage of total expenditure is 65%. This is a slight increase since 2012 (61%). The median contribution (income less direct costs) on service agreements or contracts as a percentage of income from these is 12%, slightly higher than the result for 2012 (9%). The median surplus (income less total costs) on service agreements or contracts as a percentage of income from these is -0.1%. For a quarter of organisations this was 2.7% or more and for a quarter this was -26% or less. These figures indicate that for some organisations there is work to do to achieve full cost recovery.
The Finance Function
The median staffing level is 1 finance employee full time equivalent (FTE) for every 22 employees (FTE). This has fallen since 2012 (1 finance FTE for every 31 employees FTE). At median, around half of finance staff are partly or fully qualified (55%). The most frequently mentioned areas where change is planned in the next 12 months are management reporting, performance reporting, transaction processing, and finance training for non-financial staff.
The Finance Sub-committee: 95% of respondents have a finance sub-committee. Of those, a median of 50% of members have senior financial experience, i.e. have worked in finance at manager or director level. On average, the finance sub-committee meets 4 times per annum.
On most measures there are significant differences in performance between participants. Although factors such as size and sector explain some of these differences, in our view, they do not account for all the variation shown. We conclude that much variation between organisations is a result of differences in approach, and therefore that many organisations have the opportunity to improve their performance.