CHARITY FINANCE DIRECTOR

Charity outsourcing – What to consider

Charities are increasingly seeking to outsource their internal function/services. It has become more urgent in the current difficult funding environment. We have been providing outsourced accounting and financial management solutions to charities for some times. While outsourcing has broadly benefited to all charities to reduce costs and improve efficiency. However, the level of gains from outsourcing varies. From our experience, here are few issues that you need to consider while outsourcing to ensure that you gain maximum from the outsourcing decision;

1. Outsourcing motive: Why do you want to outsource? Cost reduction motive remains the prime reason, but it does not have to be the only one. By the way, outsourcing does not suit everyone, therefore, consider your circumstances carefully.
2. Expectations: Make sure that you know what you expect from your outsourcing provider. For example, regarding your regular reports such as “Monthly Management Accounts”, be clear from the outset the format, contents and timetable for getting the report to you.
3. What are you outsourcing? This is a fundamental aspect of outsourcing to remind all that you are outsourcing some activities, process but the overall financial management responsibility remains with you.
4. Partnerships: Build a partnership with your outsourcer to achieve charity mission. If you just treat them a service provider then often the benefit is less for the charity.
5. Charity knowledge and commitment to your cause: It is essential and indeed makes life much easier when they outsourcer have in-depth knowledge of charity operating environment as well as your charity’s specific operational challenges.
6. Your named contact person: Make sure that you have named contact person to discuss any accounting or contract aspect of your charity. Do you have access to this person anytime?
7. Regular meeting/interactions: How often you meet the outsourcer to review issues of your accounting (e.g. management accounts, etc) or services. This makes a big difference to the charities.
8. Turnaround time frame: Make sure that the outsourcer turnaround timeframe are incorporated in the service level agreements. For example, when you have a query, what is the timeframe the outsourcer must respond?
9. Contract lengths: It works well when you enter on a shorter contract. While a longer contract is good for outsourcer but it not often benefits the charity. A shorter contract always ensures a continuous effort from outsourcer to improve service. In this uncertain charity funding environment charity trustees need to minimise their exposure to liabilities.
10. Terminating the contract: You need to have clear cuts understanding what happens when you terminate contracts. Are there any hidden costs or hindrance for you when you decide to terminate the contract? What happens to your records, documents, etc. and how they are handed back to you.
11. Fixed Cost: Go for a fixed price contract, this is always good for the charity and force outsourcer to finish jobs without any fault.
12. What extra benefit: Find you what additional benefits are provided by outsourcer free and make sure that you utilise them for your charity.

You can visit Charity Accounting Services for more details and further tips about your charity outsourcing.

Disclaimer: This article provides and overview of the relevant issues for charities not a specific suggestion for your organisation. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the author.

The whole charity sector in the UK is going through a turbulence period as its funding streams, particularly from govt sources are on the decline. Well, while the state of funding declination is widely believed but the issue of uncertainty i.e not having a clear picture is the main source of anxiety at this moment.

Most charities we work with are having some kind of re-budgeting, reorganising or redundancy process. The situation is also forcing charity trustee/management to explore the alternative way (e.g cheaply)  of doing  things to achieve the same mission. In addition to usual cost saving exercises, charities are increasingly exploring to outsource some internal function, and some are going an extra mile to work with others through the merger, etc. Perhaps there were better ways of doing business that never explored but the funding crisis just created the opportunity.

Often in these circumstances, too much attention is given to save jobs within the charity. Trustees need to be mindful that the charity exists for a cause where saving jobs are not a prime charitable objective, therefore, need to exercise their judgement carefully. If the mission of the charity is achieved through working with other even through merger/amalgamation or with outsourcing existing internal function then there should be no hesitation to go for these changes.

Charities are currently going through one of the severe funding cuts and uncertain environment. The most important aspect is the uncertainty and not having full picture about what is going on the charity funding in the UK, particularly from the statutory sources. The Third Sector magazines’ recent report suggested that Croydon council has slashed around two thirds of it funding to the charities and voluntary organisations. It is very amusing when govt’s “big society”  idea is somehow expecting charities to do more and local council are slashing the funding to charities.

In this funding cut environment, charities are already starting to take steps to cope with the reduced finding in coming days. Perhaps in a way, the current situation has also been forcing charities to do the job differently and indeed more efficiently.

In any financial management process, reducing cost and efficiency savings are equally critical like getting more funds. It is time to focus on a number of areas, those can generate savings and reduce charities cost without compromising the services they buy?  We are involved with a number of charities and using the range of ways to maximise cost reduction for them. Charity trustees and all relevant stakeholder are aware that every penny saving has a direct impact on the availability of funds for its core mission.

If your charity is not already embarking on cost reduction then why not start looking at the following;

• Review the existing cost bases (office rent, telephone, fundraising costs,  etc) and prioratise time in order to the impact of relevant cost base if the cost reduction could be achieved.

• Revisit your internal business  processes e.g. how things are done. You will be surprised that a lot of the activities are built up historically, and you can easily remove the waste.

• Find out where to you get best value services – is it inside the charity or from someone else outside. Why not outsource (finance, HR and IT etc) or share the back office services with someone in similar situation.

• Look at whether you are financially viable based on the funding sources and the combination of your funding. Merger could be a way for you to survive you mission.

You are not alone in this situation, therefore share with others and make the best out of the crisis. Specilaist like Charity Accounting Services with their indepth charity sector knowledge could help you. However, acting in time is crucial for your charitiy’s survival.

While charities always believe in the necessity of  saving costs but in general there is a lack of active drive for it.  We are now experiencing the emergence of increasing number of provider coming up with free services or product.  Charities are even in better position to take advantage  of  free or reduced price services as companies can claim extra benefit (CSR) while serving a charity compared to a company.

After making any buying decision charity should first look at whether it is available FREE and then discounted price for charities. When you exhaust all source to find free/reduced price, take the test drive with your supplier free. Last week, I was in workshop where several suppliers indicated that they are always prepare to allow charities to experience the service free for some period before buying.

Take the example of charity recruitment cost, how much you spend when you to post a charity job advertisement in newspaper or leading job website.  Don’t tell me the costs but you know the answer. You can find several job websites including www.charityJOB4u.co.uk where any charity job advertising in FREE.

Don’t be shy and always ask extra discount from your suppliers. Have you looked at the already available free or extra services with the your existing supplier. If  not then it could be starting point.  Recently, I did the similar with an existing supplier of a charity I am involved and could not find any free bee available with them. Then, we ask whether they can make their company’s charitable donation to us and they agreed immediately.  Extra cash for charitable mission – not bad !

Golam Morshed

Charity Accounting Services

Charity manager or trustees normally become frightened with the word “outsourcing” though they don’t realise that everyday this is being already done in their charities.  While working with many charities/NGOs, I noticed that the sense of “loss of control” seems the main issue while considering the outsourcing. It is the physical distance from the charity to outsourcer office that create the “loss of control” feeling. We managed to demystify the myth with one charity, we are currently working with. the charity in question is a classic small charity scenario e.g around £ 4ook annual income mainly from grants and have 2 full-time and 2 part timer. Before outsourcing their accounting and related back office function to us they employed a part-time accountant/ book-keeper who was available part-time as per the employment contract.  Since outsourcing, the charity realise that they can contact us anytime over the phone or email and they are enjoying this advantage. Just being available when they needed has made them an outsourcing fan.

While cost is an obvious factor in outsourcing decision but we always emphasis that charities should not only think about cost reduction. In the above case on top of at least 40% cost savings, the charity is enjoying access to diverse skills (e.g book-keeper, accountant, finance director level etc) and anytime access.

The most important aspects of the outsourcing is that charity should build a partnership with the outsourcer not just another cost saving supplier.  Obviously, charities know the value of partnership better than anyone.

If you are considering to outsource charity accounting and related back office function, you might like to contact Charity Accounting Services, specialised with smaller charity/ NGOs.

Wish you all the best.

Golam Morshed

By the word 2nd or 3rd tier charity, I mean the charities those primary purposes are to speak for, or support member charities. These are often also referred as networking or coordinating organisations and exist from local to national level.

A disturbing trend is being developed as a large number of these charities are focusing too much to sell their or their affiliate commercial company services to member charities.  I was speaking to the CEO of a medium size charity, and he reckons that at least 80% of  correspondence he is receiving is some kind of marketing communication to sell something. One such (very well known) national level membership charity has at least sent him 10 email advertising just for one training course.  Member charities are puzzled and one director commented that.

“We seem paid our membership fee to receive targeted marketing e/mail shot.”.

He questioned that perhaps these 2nd/3rd tiers charities lost their purpose of existence i.e. to serve and speak on behalf of members.  While speaking to marketing director of  a leading national level networking charity recently, I got the sense evangelism in their marketing approach.

“Well if that is the case, soon they are likely to lose members and the very reason for their existence”  said my CEO friend.

Charities/NGOs  are taking hard look into their organisational structure in this credit crunch climate. Interestingly, I find that while almost everyone is in some kind of notion to do something for the credit crunch, though they are not very clear how actually they are affected if at all. However, I think this is a good sign as the credit crunch is at least forcing charities to think differently. Yesterday, I had a chat with one charity CEO, whom I supported around 2 years ago while they were going through a restructuring/ redundancy process due to falling general reserve. At that point of time, the charity had 27 staffs, and it seems that all of them were busy with no spare times. Now after two years the staff level came down to 15 and interestingly the charity income has not reduced or even increased slightly. Relevant stakeholders including internal are happy with the services being received and the general reserve is increasing slowly. The reduction of 12 staffs equated roughly £ 350k savings.

I asked the  CEO “exactly what is missing here” – he replied that we certainly got rid of unnecessary meetings as we were used to conduct in every Monday. It does not seem that the mission or level of service delivery has been affected at all. Does it bring us to the point that a lot of time, there are self generating jobs within charities, and often it is just to make people busy? In general charity/NGO has a culture of meeting often without knowing what exactly that is for. This particular charity would have been bankrupt by now if this far sighted restructuring approach  were not initiated by the CEO two years ago. Who know how many  charities are there facing crisis but a hard look into the way they structure might keep them alive ?

In my experience an organisation always benefits from having a diversified trustee board. In the simplest terms, you get different views, a wider perspective while discussing issues at meetings and the benefit of a range of different personal experiences. A while ago I joined a board whose trustees were all about 70 years old, white, and from an affluent economic and professional background. It was a great learning experience for all of us – I was surprised how welcoming they were to me, and they frequently sought my views on subjects, as I could provide a different perspective.

However, there was one significant problem. The trustee meetings were held at 10am on a working day, and to attend them I had to take a day off work, which I couldn’t afford to do. I wanted to stay on the board and pointed out that the meeting time was a major barrier for many younger people who might be interested in becoming a trustee but were employed full time or self-employed. The trustees were keen that I should remain a trustee, and also to attract new people to the board so agreed to change the meeting time, which made a huge difference. By the time, I left the board after four years, they had two more “different” people. I believe that as a result the board is younger, more vibrant and that all the trustees are enjoying the work they do for the charity.

This was also published in the first of a series of short pieces in e-newsletter August 2008 published by Charity Trustees Network where I shared my experience as a trustee.

Have you ever raised the question ! Charities with limited resources often spend more % than their rich fellow charities to count the money (i.e accounting). In second day of my work with a charity CEO, I asked him how much he spends to count the money and precisely what proportion of their income? In this instance, two full time people were employed in accounting where organisational annual income was around £600k. Those work in London are not going to be surprised to hear that only payroll cost of employing these two staffs were around £ 60k. My follow up question with the CEO was “will you spend 10% of your income to count the money if you were running your own small business ?” Offcourse the answer was “no”, then why this level of spending has to be justified in charities. I often hear that this is because donor, as they are very demanding etc etc. This goes back to the essence of our existence – do we exists for staff or for the mission we believe. If the answer is mission, then there are plenty of options to minimise these costs – why don’t you start exploring now, its not rocket science.

You can visit Charity Accounting Services who provide affordable accounting services mainly to smaller charities/NGOs in Greater London area.