Six steps to a Finance Department Budget

24 November 2015

Over recent months the Chancellor, George Osborne, has been agreeing plans with Government departments for the course of this parliament. This generally involves large cuts because the UK Government is still borrowing significantly to finance current expenditure. He has even made cuts in his own finance department, the Treasury.

Charity finance directors also have a primary role in making sure that resources fit the developing shape and needs of their organisation. This article sets out six key steps toward an effective finance function.

The first step is a deep understanding of the strategic needs of the charity. This can be gained through involvement in setting strategy and business plans. The common split of Resources Director and Head of Finance should provide capacity to both take an active part in discussions and plans while guiding the agenda through the production of documentation and reports. Avoid spending too much time making the spreadsheet model add up.

The second step is receiving and acting upon the feedback from users of the service provided by Finance. External pressure can often mean that finance teams can be defensive, responding to criticism but otherwise happy to be left to get on with the job. However, the finance function only exists to serve the needs of the wider organisation and being proactive over improvements to the service will help the team keep the initiative. An annual survey or service review meeting will help embed good practice but vary the methodology to keep it meaningful.

A third step is to review the scope and structure of the finance team. Most would cover the core responsibilities of processing financial transactions and providing management information but there are other aspects to consider. Depending on the activities of the charity there are functions that can be best placed within finance such as payroll, sales or fundraising administration. This may be temporary as finance often provides stability and a safe pair of hands while other teams cope with interim management. Attention should be paid to management activity and span of control.

A fourth step is to consider outsourcing. Shared services centres can take on many of the traditional finance functions and will often achieve lower cost through improved processes. This can be at the cost of a loss of control and ability to influence the service but continuity should be assured. At a lower level specific functions such as payroll are commonly outsourced, especially if the organisation is not large enough to keep specialist payroll staff.

The fifth step is to set expectations for future performance. This should include activity measures, KPIs and consideration of risk. KPIs are important because evidence will be needed to monitor performance on an ongoing basis. An explicit link to the risk framework is part of the internal control mechanism and helps keep the level of control proportionate to the risk. An important ingredient can be benchmarking with relevant comparators if available. Most users source the metrics and go no further but the most valuable learning from benchmarking is through meeting other practitioners and understanding how they have achieved high performance. This is a long term process and can help with the second step above.

The sixth and final step is for the finance team to identify the resources that it will need to meet these performance levels and agree a budget. This is the point at which existing staff are compared to resource requirements and the result may be recruitment or redundancy but should always include development expectations for existing staff.

If you are interested in reviewing the effectiveness of your finance function please contact chris.harris@mhllp.co.uk

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