Managing your charity’s finances in a high inflation environment
Posted on: September 7, 2022
The time of zero inflation is over and the world is seeing increasing costs and interest rates, so how do you manage this as a charity? Find out here.
As Bob Dylan once sang “The times they are a changin’ ” and with another interest rate rise on the horizon, it seems like an appropriate time to look once again at the subject of forecasting and finance.
Inflation is increasing rapidly, whatever method you use, and this means that charities will have to think about how they forecast both from a strategic point of view and from a practical standpoint.
So in this post, I wanted to give you a brief look at the things I am considering with the charities I work with and to give you some practical steps to take.
1. Interesting inflation
I’m really old. So much so that my first day of work was in July 1979. Interest rates at that time were 14% and inflation was 13.42%.
You may be like me and remember the heady days of July 1982, when we had 8 interest rate changes in a month!
Far from being unusual, times when interest and inflation rates rapidly change are the norm. Indeed, the last five years have been a relatively quiet time in terms of interest and inflation rates, with both being historically low and rarely changing.
So if you’ve only just come into the world of finance, then turbulent times might be a bit of a surprise, and knowing how to deal with them could be a bit of a mystery.
2. Don’t panic!
So the first thing to say is that you should know what is going on, but you shouldn’t panic.
We’ve lived through these types of times before and we’ll get through them this time around. But we need to take some simple measures to make sure that we have a clear sight of what is important and so that we don’t miss out on opportunities.
3. What’s going to change?
When things are moving quickly, it is tempting to think that you are standing on shifting sands and trying to hit a moving target (sorry for the mixed metaphor).
But probably the first place I start is to understand what can move, what can’t and what is in the middle.
For example, you may have an office that is rented on a long-term lease. Your payments will be set by the lease terms and can’t be changed until the next review date, so you know you don’t need to worry about them until then.
My first port of call when I am forecasting is to build in all the things I know will not change and then forget about them.
4. Embracing change
Then you have the things that you know are going to change. A good example of this at the moment is fuel prices. I know they are going to change, so what I will do is look to understand whether this matters.
One charity I work with doesn’t have any vehicles and only pays a small amount of mileage to one person. So the fact that fuel prices are changing is irrelevant in the grand scheme of things. In this case, I will build in a forecast based on last year’s numbers and accept I am going to be wrong, but that it won’t matter too much.
Another charity I work with has carers that visit clients in their homes and so they pay a lot of mileage to many people, so fuel prices are important and in this case I know I need to do a special forecast just for these.
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