It’s Charity Finance Week again (hurrah!) beginning on Monday 07 October, this year with an overarching theme of Accounts and Accountability.
Far from being the drab and mundane activity so many see, the German writer, poet and scientist Goethe, one of the greatest Romantic visionaries, described Double Entry Bookkeeping as “among the finest inventions of the human mind” (Wilhelm Meister’s Apprenticeship, 1796).
So what’s so great about Double Entry? The answer is that it keeps us honest; every Balance Sheet shows us two sides of the same coin – how much wealth our charity has, and where to find it.
Both matter equally. Is the charity keeping too much from its beneficiaries (or not enough to survive), and is it being looked after sensibly and responsibly?
Accounting gives us the data we need, but it rarely gives us a context – other than the prior
year’s figures. Accountability requires a context, and the only question one really needs to ask is ‘Is it a small number or a big number?’ The answer depends on the context of course.
For charities with endowments and a long history, it’s remarkably difficult to answer this question: Is £13m better than £10m? Not if you could have spent the extra £3m and still be as rich as you were when you started.
And that’s the problem – too few charities concentrate on when they have too much, and too many concentrate on justifying what they retain.
It’s like a moral version of Double Entry – do the Trustees own the money or does the money own them? The context for a long-term investor must be the long term, not the prior year’s figures.
To find out more about how we can help you gain a better understanding of your finances, read more about our approach, including a recent case-study.