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Know your facts

How can your organisation minimise risk and deal with financial difficulties?

There is always a difficulty when it comes to managing the equation between “risk” and “reward”. In the current environment, organisations are encouraged to be innovative and therefore often face a range of threats.

Risk is not a dirty word. It is often considered as negative when in fact, risk can equal both positive and negative outcomes. Try replacing the idea of “risk” with “areas of uncertainty” during the planning process. Sounds a bit more inspiring…

Organisations need to identify and evaluate potential risks/areas of uncertainty, ensuring that tested policies and procedures are in place to effectively manage them. Unexpected things can and will happen but if flexible structures and controls are in place, risks can be minimised.

The single most important point is recognise that problems can and will occur, have a plan ready to deal with them - this approach will avoid the major pitfalls. Insolvency usually creeps up unnoticed on organisations because no-one is alert enough to stop the slide at the beginning, when it may be relatively simple; they wait till the signs are painfully obvious when it may be too late.

Financial problems

Some causes of financial problems which are widely recognised in the commercial sector also apply to the community and voluntary sector. These fall into two categories:

Management problems 

  • the one-person rule: chief executives should lead without dominating
  • non-participatory board: trustees should take an interest beyond topics of appeal
  • ack of balance in the top team: an over-abundance of individuals with similar roles weakens finance or strategic expertise
  • lack of management depth or experience

Accountancy problems  

  • budgetary control: utilising a budget vs. actual figures system enables variances to be identified and dealt with continuously 
  • cash flow forecasts: a cash crisis can arrive unexpectedly without effective forecasting
  • overtrading: can cause cash shortfalls which may require borrowing of funds
  • the big project: ask is it worth doing? What are the risks? Can we deliver?

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