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Finance Strategy 2014-17
0.1. The finance strategy aims to address how our predicted income will be efficiently and effectively translated into impact we want, in line with our strategic plan and organisational values.
0.2. It will be broken down into four key areas
- 1. Mission and strategy
- 2. Financial picture expressed as cashflow and balance sheet figures
- 3. An understanding how Oblong intends to get from the current position to 2017
- 4. Procedural changes
1. Mission and Strategy
1.1 Our Aims and Objectives
1.1.1. The grants and contracts we apply for and the unrestricted money we receive (and have in reserve) is spent on furthering these objects:
22.214.171.124. to develop the capacity and skills of people living in socially and economically disadvantaged areas in such a way that they are better able to identify, and help meet, their needs and to create active, flourishing communities; and
126.96.36.199. to run a community centre, primarily for the benefit of the Woodhouse, Little London, and Hyde Park areas.
1.2 Our Values
1.2.1. How we do this is guided by our values:
Empowerment people feeling able to change their community for the better
Collectivism making decisions together as equals
Sustainability caring for the future of the community and the environment
Community led (directed by people) focusing on people’s ideas and needs
Equality ensuring that every individual has an equal opportunity to make the most of their lives and talents
Respect and care how we relate to each other and the people we work with
1.2.2. More background detail can be found within the Strategic plan 201416 document including a breakdown of the analysis from the first Impact assessment 2013.
2. Financial Picture
2.0.1. Oblong will focus on the impact made and who will be accountable to achieve it.
2.0.2. A clear financial framework within Oblong ensures we have the desired impact today while also remaining financially viable to have impact tomorrow.
188.8.131.52. Income growth in contributions, grants, rentals
184.108.40.206. Funds reserve levels
220.127.116.11. Assets liquidity of assets
18.104.22.168. Expenditure the percentage of total costs on activities in furthering the organisational objectives
2.0.3. If these metrics move in the right direction, Oblong would enjoy increasing expenditure on activities in furtherance of its objectives, financed by growing income and underpinned by an appropriate level of reserves held in a suitably liquid form.
2.1.1. In order for Oblong to maintain itself as a going concern, there is no choice but to commit precious resources to generate reserves in order to:
22.214.171.124. maintain financial stability
126.96.36.199. invest in income generating activities
188.8.131.52. manage and administer efficiently
2.1.2. The art is to maximise costeffectiveness. Keeping these allocations as low as possible without sacrificing effectiveness in order to commit as much as possible for activities that further Oblongs objectives.
2.2.1. Oblong can't expect to have longterm impact unless it runs on a sound financial footing. So, in the competing demands for the organisations available funds, the issue of reserves must come first.
However this does not mean prioritising reserves at the total expense of other competing demands. If the current reserves are substantially less than the level required, as identified in the finance strategy, then we will need to build up the reserves over a period of time. This may also include taking a medium term view on investing in income generating activities.
2.2.2. The Locality assessment (2014) conducted into our contract readiness highlighted the overall low liquidity level of readily available funds as the only substantial factor in successfully bidding for contracts. Aligned with the fact that we have a large outstanding long term debt bigger than our annual turnover then we are vulnerable without a suitable level of reserves.
2.2.3. The current reserves target is to aim for between 3 and 6 months income level in reserves. This will vary depending on the level of risk associated with securing further income within the different streams. At the start of this period we have 1.8 months running costs and we aim to increase this to over 2.5 months running costs. This does not represent a significant increase in terms of reserves but is against a background of expanding services and negotiating from one funding cycle to another. In cash terms it is an increase of over 35% in cash reserves.
2.3 Income Mix
2.3.1. If we want to increase the funds available for activities that further our objects, then we must make the income generating activities more profitable and try to reduce our management and administration costs. The Locality exercise also showed that Oblong came significantly lower than most local peers in terms of ratio of staffing costs to overall income (43% vs an average of 65%). A focus on efficiency of managing and administering the charity to ensure minimal waste (and maximum spent on furthering the objects) should not act as a drag on overall growth.
2.3.2. Any investment should be in high performing activities that address strategic priorities. Financing other activities should therefore be questioned.
2.3.3. In developing this strategy it is the opinion of the staff that grant income levels will remain flat at best. The focus over this period to increase the income mix diversity will be by:
184.108.40.206. growing and maintaining the rental income
220.127.116.11. investing time in securing contractual work (by becoming ‘contract ready’)
18.104.22.168. investing in developing an ‘Oblong Training’ programme
2.3.4. This is estimated to reduce our grant income to ~50% of overall income which will increase overall resilience and ensure we are agile enough to focus our activity in what furthers our objectives best.
2.5. Cashflow and Balance sheet projections
The cashflow and balance sheet projections are found in separate documents along with the Cashflow 1417 notes detailing the changes in income and expense lines over the period.
3. How do we know Oblong is on track?
3.0.1. The Strategic goals and milestones can be found in the Strategic plan. We can monitor and observe if this is on track by seeing if the Financial indicators from this Financial strategy are
being reached. The indicators can help provide a suitable critical eye over the key areas of performance allied with the management accounts (key financial metrics) to ensure the direction of travel is being
maintained and the focus on what impact the income is having is being achieved.
3.1 Key Performance Indicators (KPIs)
3.1.1. Carefully thought through KPIs can help report much more detail and context quicker and in a much more meaningful way to a wider group of people than just numbers and spreadsheets.
3.1.2. Picking out key milestones from the strategic and financial strategy to help indicate progress can help minimise the ‘target hitting’ culture and move the focus further up the results chain to what impact is being made while still ensuring that key metrics (liquidity, reserves etc) are maintained.
3.1.3. Financial indicators used to assess progress will be monitored monthly to begin with. The four key areas to monitor will be:
22.214.171.124. Income An income indicator graph showing the overall level of income and mix of income year to date against a budget.
126.96.36.199. Funds The number of months running costs year to date held in reserves. A months running cost will be calculated by dividing the overall budgeted level of expense for the year by 12. The target for the 2014 17 timetable is to increase this from the March 2014 level of 1.66 to 2.5 months running costs by March 2017.
188.8.131.52. Assets For the asset productivity we will look at the ratio of the main fixed asset (the building) minus the associated long term debt (loan) to the rental income year to date. Based on the cashflow projections we expect by 2017 the rental income levels to be £71,390 against a fixed asset value of ~£180,000 (after deducting £200,000 loan still outstanding). This is a ratio of 2.5:1
184.108.40.206. Expenditure To assess overall cost effectiveness we will monitor % of staff costs to the overall cost base year to date. The January 2014 Leeds Locality report benchmarked the consortia members and found an average of 65.2% we will aim to keep this between 48% and 58% to ensure firstly that lack of investment is not limiting growth but also ensure that the largest single expense (staff costs) does not increase ahead of profitability either.
4. Procedural Changes
4.0.1. Ownership and particularly the devolved ownership the staff and volunteers have over the strategic goals and the financial measures indicating achievement is key to success.
4.0.2. In order to be effective in achieving the targets a changes in procedure will be needed. I have taken comments throughout the strategic planning as well as ongoing discussions with colleagues and feel some of the measures detailed below will benefit Oblong in this respect.
4.0.3. This will require the finance role to move from administering to more financial stewardship.
4.0.4. I feel we have a strong financial grounding at Oblong. We have sufficient oversight between the structures in place and the reporting function to the board and Petes input as Treasurer. I think in order to embed a stronger culture of decision making and goal focus we need a cultural shift away from a centralised finance decision making function to wider accountability for inputs (spending) but more importantly outcomes for strategic goals. I think this is achievable without losing any broader oversight or control.
4.1 Financial Reporting
4.1.0. I would like to expand on the good work achieved in board/SIB reports produced over the last period and push some of the information gathering and sharing (and analysis) further out to the decision makers
220.127.116.11. Trustees Similar report of cashflow and balance sheet by month as a summary (in place currently)
18.104.22.168. Staff Report by project by each expense line (in place currently)
22.214.171.124. Collectives Report by collective by each expense line (when suitable)
4.2 Change in Emphasis
4.2.1. More context
4.2.2. Less centralised micromanagement of budget lines
4.2.3. Link spending (input) to outcomes and ultimately impact better
4.2.4. Higher level of accountability
4.2.5. Better tracking
4.2.6. Clear budgetary responsibilities (income and expense) for staff and/or collectives
4.2.7. Unrestricted expenditure more sensitive and dynamic (scale up/down) to fluctuations in income
4.2.8. More agile and outcome focussed
4.2.9. More data driven
4.3 Practical Measures
4.3.1 Directors Finance Reports
126.96.36.199. Faster release of management accounts
188.8.131.52. Review past performance and future budget over rolling period
184.108.40.206. Report on last quarter, Year to date, previous year
220.127.116.11. Introduce Key Performance Indicators (KPIs)
Aim is more candid dialogue about performance and outlook focused on impact not budget lines
4.3.2 Staff Finance Reports
18.104.22.168. Quickbooks Online real time reporting
22.214.171.124. Increase access for budget holders to data
126.96.36.199. Increased responsibility/accountability for spending
188.8.131.52. Link spending to outcomes better
184.108.40.206. Multi year restricted projects to include balances brought forward
220.127.116.11. Translate strategy into KPIs for monitoring
Aim is for more devolved data to improve decision making
4.3.3 Collective Finance Reports
18.104.22.168. Clarity of remit needs to be agreed first
22.214.171.124. Work plans based on Strategic goals. Ownership of input (expense or activity) to achieve the goals
126.96.36.199. Reporting to wider group on achievements against goals. Requires transparency to ensure accountability
188.8.131.52. Need to agree who the collective is responsible and accountable to (staff, board, bobalong?)
184.108.40.206. Operationally critical goals need staff to lead on