The Income & Expenditure Risk Ready Reckoner

Charity trustees should regularly review and assess all the risks faced by their charity and plan for the management of those risks.

Identifying the risks associated with your charity’s income and expenditure will inform your risk management and financial planning strategy, as well as help with your considerations for setting a reserves policy.

There are different methods of identifying the risks against your charity’s income and expenditure.

Here, we take you through a method that is based on an understanding of the risk profile of your charity’s income streams and the degree of commitment of your charity’s expenditure.

 

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Click on the image to download your FREE Income & Expenditure Risk Ready Reckoner and work through the following instructions to complete the Ready Reckoner.

(Requires MS Excel)

 

 

 

About the Ready Reckoner
The Income and Expenditure Risk Ready Reckoner is designed to help you to identify the levels of risk associated with your charity’s forecast income and expenditure.

When completing the Ready Reckoner, please bear in mind that the more accurate the information you enter, the more meaningful the overall results will be. Therefore where possible, try and use information drawn from any other strategic planning, budgeting and risk profiling that your charity may have undertaken.

 

How to Complete the Income & Expenditure Risk Ready Reckoner
Use the following instructions to fill in the Income & Expenditure tables. The tool will then give you an at-a-glance view of whether your charity’s restricted and unrestricted income streams are high, medium or low reliability and whether each type of expenditure has a low, medium or high level of commitment.

The tool will also calculate the total amount of high, medium and low reliability income and the total amount of low, medium or high commitment expenditure.

 

Income Forecast (click on the Income tab at the foot of the Ready Reckoner)

Dates
In the boxes labelled dd/mm/yy enter the dates for which you are forecasting your income and expenditure (e.g. 01/04/17 to 31/03/18). This is likely to be a period of 12 months although you may choose whatever period of time you wish.

Source of Income
List all of your charity’s forecast sources of income for the time period you have chosen.

Restricted and Unrestricted Income
Enter the amount of income you are forecasting for each source in the Restricted Income column if the income has restrictions on how you may spend it, or Unrestricted Income column, if you may spend the income on whatever meets the charity’s needs. You may need to group certain types of income together to avoid running out of rows. Remember however that you will be scoring the reliability of each source of income, so any groupings will need to share the same scores.

Number of Donors
Enter a number from 1 to 4 to score the number of donors for each source of income as follows:

1 – 21 or more donors or funders
2 – 5 to 20 donors or funders
3 – 2 to 4 donors or funders
4 – 1 donor or funder

Certainty of Income
Enter a number between 1 & 4 for each source of income as follows:

1 – guaranteed
2 – highly likely but not guaranteed
3 – quite likely
4 – uncertain

Stability of Income
Enter a number between 1 & 4 to indicate the relative stability of each source of income as follows:

1 – has risen each year for the last 3 years
2 – shows an upward trend but has fluctuated over the last 3 years
3 – has remained fairly static (+/- 10%) for the last 3 years; OR
   – new source of income / charity has less than 3 years income to compare
4 – shows a downward trend over the last 3 years

What The Ready Reckoner Will Do
Based on your scores, the tool will calculate the reliability of each source of income for your charity and provide you with a visual representation of the aggregated reliability for your restricted and unrestricted income using the following colour code:

Green – High Reliability
Amber – Medium Reliability
Red – Low Reliability

 

Expenditure Forecast (click on the Expenditure tab at the foot of the Ready Reckoner)

Item of Expenditure
List all of your charity’s expected expenditure for the time period you are assessing. Again, if your charity has lots of different items of expenditure you may need to group certain types together. Remember, you will be scoring the level of expenditure commitment, so any groupings will need to share the same scores.

Restricted and Unrestricted Expenditure
Enter the amount you expect to spend on each item of expenditure under either the Restricted Expenditure, if the spend is from Restricted Income or Unrestricted Expenditure if the spend is from Unrestricted Income. You may wish to refer back to your entries under Restricted Income and Unrestricted Income to decide in which column each item of expenditure should fit.

Impact of Cutting Expenditure
Enter a number between 1 & 4 to score the impact of a decision to cut each item of expenditure in terms of how many people it would affect. Include beneficiaries, staff members and volunteers in your assessment:

1 – 5 or less people
2 – between 6 and 10 people
3 – between 11 and 20 people
4 – 21 or more people

Priority of Expenditure
Enter a number between 1 & 4 to score the priority of each item of expenditure using the following scale:

1 – not necessary to meet the charity’s objectives
2 – quite important to meet the charity’s objectives
3 – very important to meet the charity’s objectives
4 – essential to meet the charity’s objectives

Source of Funding
Enter a number between 1 & 4 to score the source of funding for each item of expenditure using the following scale:

1 – funded by unrestricted funds
2 – funded by unrestricted grant funding
3 – funded by restricted funds
4 – funded under contract

What The Ready Reckoner Will Do
Based on your scores, the tool will calculate the commitment risk associated with each item of expenditure for your charity and provide you with a visual representation of the aggregated commitment risk for your restricted and unrestricted expenditure using the following colour code:

Green – Low commitment
Amber – Medium commitment
Red – High commitment

 

Using the Information from The Ready Reckoner

The Income and Expenditure Risk Ready Reckoner enables you to see at a glance the level of risk associated with your charity’s forecast income and expenditure, based on the risk scores you have entered.

If for example, your charity has a high percentage of medium/high risk income from a small number of donors, funding a high percentage of high commitment expenditure, then the charity may wish to look further into how it might reduce it’s income risk or offset the risk with other sources of funding or assets.

Conversely, a high percentage of low risk income, supporting a high percentage of low commitment expenditure, is generally a more secure position in order for the charity to be able to continue to meet it’s future objectives.

 

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FREE Reserves Calculator

We hope that you’ve found the Ready Reckoner to be a useful and intuitive tool to use. If so, take a look at our FREE Reserves Calculator. If you are considering creating a Reserves Policy for your charity, we think you will find this an invaluable tool to use. Click on the image to view and download the calculator in our Guide to Reserves

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