The financial environment for arts and culture organizations continues to present difficulties as many local councils are contemplating or enacting funding reductions. This has been exacerbated by distressing news, with several councils proposing to eliminate their entire cultural budget. The aftermath of the pandemic has also impacted visitor and attendance numbers, as well as philanthropic donations.
In the midst of these challenges, Arts Council England’s National Portfolio organizations have been reassured by a recent funding extension until 2027. However, for charities hoping to join the Portfolio, their opportunity has been delayed by a year.
As an auditor and adviser to the sector, I have observed increasing trustee board involvement in detailed strategic planning. This has led to greater financial literacy among trustee boards, with a focus on budgeting, cash flow forecasts, and the going concern assessment. Boards frequently seek advice to ensure they are meeting their obligations in these areas.
When it comes to the going concern assessment, it is essential to consider all available information about the future, with a timeframe of at least 12 months from the date of authorizing financial statements. The coming year’s financial statements need to reflect the organization’s ability to continue operating as a going concern.
The review of ‘going concern’ is an integral part of the trustees’ approval of accounts and is often treated as a separate process from the normal forecasting. However, it is suggested that organizations refresh budgets and cash flow forecasts simultaneously with the completion of the going concern assessment, especially for those with low reserves and uncertainty over future funding.
My advice for charities is to extend their budgets and cash flow forecasts from the traditional one-year period to at least three, if not five years. Although predicting income levels in later years can be challenging, it helps with the appropriate planning of longer-term projects such as building repairs and maintenance.
Trustees play a crucial role in gaining comfort with the going concern conclusion, and it is important for them to consider various factors when reviewing budgets and forecasts. This includes understanding the reliability of assumptions, stress-testing, and considering the predictability and certainty of income items. Furthermore, creative sector tax reliefs and the impact of delays in receiving approvals from HMRC should also be taken into account.
It is also important to ensure that budgets cover both restricted and unrestricted funds, as well as capital expenditure. Trustees should regularly compare budgeted reserves with the reserves policy and assess the accuracy of previous budgets. Additionally, it is vital to verify the accuracy of information as forecasts are usually prepared on Excel rather than automatically generated from the finance system.
While we cannot predict the future, being armed with as much information as possible and regularly reforecasting can provide the best chance to respond appropriately to a financial crisis.
The role of financial management in charitable organizations is vital to navigating through uncertain times. Proper financial planning and assessments are crucial for the long-term sustainability of arts and culture organizations.
Jane Askew, Partner and Head of Arts and Culture at haysmacintyre
Charity Finance offers practical articles, analysis of financial trends, briefings on technical and legal changes, and benchmarking surveys to assist finance teams in getting value for money. For more information, visit their website and consider subscribing to stay updated on the latest financial insights.
+ There are no comments
Add yours