Prepare for funding: Understand your finances

Part 3: Let’s talk numbers

 By Tanya Wong

It’s time for part three in our four-part series to get you ready to impress potential investors and funders. We’ve covered your why and how, and now we’re going to look at how much – so you can better understand your organisation from a financial perspective.

Everything your organisation does has a financial element attached. But when you’re deep in the day-to-day it can be hard to step back and see that clearly, let alone explain it to a potential funder or investor.

Many purpose-driven organisations outsource their accounts and tax obligations to an external bookkeeper or accountant. An outside person might have excellent financial skills and expertise when it comes to balancing the books and looking after your tax. But they may not have the in-depth knowledge of your strategic objectives and industry to create accurate financial forecasts or set budgets.

When funders assess potential recipients or investees, they will want to know where your organisation has come from, where it’s at now and how the future looks – all through a financial lens. You don’t need to be an accountant or financial wizard to explain all this – but you do need to understand what funders are looking for.

There are two main things you’ll need to get a handle on before you speak to a potential funder – your day-to-day cash flow and your future revenue and budget.

Get a handle on your cash flow

Whatever your sector and the size of your organisation, there is money flowing in and out. Funders will ask about your cash flow as it gives them an indication of the financial health of your organisation. This is especially true of investors who are looking to see what level of return to expect.

At a minimum you will need to have a clear idea of your income and expenses and categorise them accordingly. And consider how large those categories are in relation to one another. 

Be prepared for the following questions:

-        What were the overall financial results of your previous years of operation?

-        Can you explain your cashflow trends over time, or any sudden changes from year to year?

-        How will your categories and their relative size change as your organisation moves towards the future? Will you have new categories of income or expenses to consider?

With preparation, you can answer questions with confidence and give potential investors or funders the information they need to determine if they’re a good fit for you.  

Make a plan

Many funding organisations will take it as a warning sign if you don’t have at least 12 months’ of budget. While no one expects it to be an ironclad guarantee, you should make an informed estimate and show how you worked it out.

And if you have a three- or five-year strategic plan, now is the time to think about how that will look from a financial perspective. Translate those ideas into numbers.

Potential funders will want to know:

-        Where does the bulk of your revenue come from?

-        What factors would potentially increase your revenue?

-        What factors could potentially make your revenue fall?

-        Which costs are fixed, and which are variable?

-        What factors could lead to a sudden or substantial increase in costs?

A success story of sustainable returns

For-profit training business MiHaven is a great example of a social impact organisation that shows strong financial returns. Whenever they consider a sales opportunity, they make sure they include a margin in their pricing and reinvest the surplus. They’re also able to clearly tie in their support goals – to help every one of their participants secure long-term employment – with their financial returns.

When they came to Sefa requesting funding for a loan to buy land for development, their strategic approach to their finances meant we were able to assist quickly. Since then, we’ve helped them with a number of loans. And as their organisation grows, so do the opportunities they offer to an increasing number of apprentices and trainees.

If, like MiHaven, you can see and describe your organisation through a financial lens, you can improve your chances of successfully getting funding. And if you’re struggling to do this, Sefa can help. If you’d like to find out more about what we do and how we can help your organisation, get in touch with us today.

Next, we’ll take a look at risks – and why it’s so important to identify and manage the main risks facing your organisation.