Trick or treat myth busters to help charity CEOs and CFOs

Halloween can be a scary day for many, witnessing some frightening costumes and masks, but some charities can also find their finances a scary place. So, our director Andy has laid out some quick trick or treat scenarios to help those in fear find a more joyful route to happy accounting!

1. Trick or treat – charities can sell services and goods as part of their work

TREAT – yes charities can indeed trade or sell services and goods as part of their work. There are two types of trading – primary purpose (trading linked to what you do as a charity) and secondary/ancillary/non-primary purpose trading which has all to do with income generation (charity shops, selling tickets to fundraising dinners etc). Both have very different tax treatments so if you are looking at diversifying your income please do give us a shout and we can help you out

2. Trick or treat – charities should reduce spending on systems and back-office support

TRICK – In our opinion, paying for support systems such as Xero and Donorfy not only simplifies your practices, but they reduce time and effort in the long run. We use and recommend these systems wholeheartedly as they can produce reports within seconds, that are invaluable for reporting to trustees and teams, which could have taken a person days to pull together. Investing in technological processes allows you and your team to spend more time doing the valuable activities of speaking to people, fundraising, and growing your entity. So, we are very much team technology and processes here! 

3. Trick or treat – charities should not make a surplus or build up cash reserves

Trick – It’s good practice to hold a reasonable amount in reserves in the event of unexpected circumstances such as a humanitarian disaster or loss of funding that happens suddenly. The charity may also plan on investing in future building upgrades or upgrading processes and systems to futureproof which would require increasing reserves to do so. However, the key here is ensuring that any reserve amounts are in line with approved reserve policies that are easy for everyone to understand and are directly linked with the strategic and risk management plans in place. Ultimately it is the charity’s board of trustees to determine what an acceptable level of reserves and cash holdings is for the long-term future. 

4. Trick or treat – charities only need to outsource financial experts for year-end reporting

Trick – Of course, some charities only want year-end support, and that’s fine. But financial consultants can offer so much support throughout the year that can be invaluable. This could be supporting the production of compliance reports, ensuring the content of an Annual Report for example is compliant with the ever-increasing demands of charity law and the SORP (Statement of Recommended Practice – the big rule book that charities have to follow when they produce their accounts) and in a way that does not put users off. Support can also involve tax advice as charities look to more innovative ways of fundraising, many are starting to look at non-primary purpose trading and having to think about charity VAT and corporation tax – complex areas that many charities have little or no knowledge about. We can lead you through this process and help to ensure you don’t accidentally fall foul of the complex legislation in this area. We also support creative charities with tax reliefs such as orchestral and theatre tax relief.

5. Trick or treat – charities should outsource expertise for regular governance reviews 

Treat – absolutely yes to this. Those within charity or not-for-profit entities will not be able to review the structures, policies, and overall governance truly independently. Bringing in a team from outside will allow for the financials, the team set-up, and the technology improvement opportunities to be truly explored. All findings and recommendations will then be shared, and accountability placed on the team to take actions where appropriate. From experience, those without external support often find themselves treading in areas of danger because someone has always done something a certain way, or hasn’t disclosed the entirety of a situation for fear of being looked into. An outsourced team can ask the question that internal teams often take for granted, and more often than not, those charities flourish after such a review.

If you think now could be a good time for your charity’s review, or you have a question about any of the above, please get in touch with the Enaid team today for bespoke and non-scary support https://www.enaidaccountancy.co.uk/contact/