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A step-by-step guide to managing a new charity’s finances

By Meagan Wood

2 min read

Just like setting up an organisation in the private sector, setting up a charity so that it’s successful means building it based on a sustainable financial model.

Without a sound financial blueprint, it’s unlikely to meet its objectives. It needs careful planning and strategic management of financial resources, as well as a sound understanding of its unique legal and tax obligations.

If you’re helping a client start a not-for-profit in Australia, then an understanding of how the following areas apply to a not-for-profit organisation is essential.

1. Financial strategy

To help your client develop a coherent financial strategy, you’ll first need to understand their strategic objectives and goals, as well as where their funding will come from. If they haven’t got this far yet, help them identify the charity’s vision and mission, which will give you an idea of what financing is needed to bring that to fruition.

Encourage them to identify several income streams, helping to mitigate the organisation’s exposure to risk and ensure they cover their operating costs. In Australia, the typical sources of revenue for a charitable organisation are government grants, commercial joint ventures, or private donations. They should also look to establish financial reserves, which will cover any unforeseen expenses and funding shortfalls.

2. Financial systems and processes

Advocate regimented financial systems and processes from day one for things like financial governance, fundraising, and accounting. This will help your client ensure fiscal accountability and enable effective decision-making when it comes to allocating resources and budgeting. Accounting software, such as QuickBooks Online, can help your clients organise their accounting data, generate financial statements, and balance the charity’s books from anywhere.

3. Financial reporting

Not-for-profits have specific tax and reporting obligations they must follow, depending on their financial structure. For example, your client will need to file periodic financial reports to the Australian Charities and Not-for-profits Commission (ACNC), and are subject to external review or audit, if they are considered medium or large – that is, they have an annual revenue of $250,000 and above. As an advisor, you will need to understand the different reporting and audit requirements for different charity sizes, including non-ACNC statutory financial reporting obligations.

4. Taxation and concessions

The Australian Taxation Office (ATO) still has administrative oversight of a charity’s taxation, particularly when it comes to tax concessions. The ATO provides several tax concessions to charities, as do state and territory governments, like fringe benefits tax (FBT) or income tax concessions. The concessions your client is eligible for will depend on the type of non-profit organisation they’re setting up, so an understanding of which concessions apply to which clients is critical. It’s also important to remember that regulations typically require your client’s organisation to be registered as a charity to qualify for charity tax concessions.

There is a lot for your clients to consider when setting up a charity. Before you take on the role of advisor, it’s important to understand the financial considerations of a not-for-profit, and how these differ to a traditional commercial business.

Learn more about getting your clients charity off to the right start with these helpful resources.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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