Why effective bookkeeping systems are needed for charities

Page Kirk Partner and charity specialist accountant James Haywood argues that a strong, robust bookkeeping system will not only establish the bottom line but also provide vital information that can help your charity thrive, even in this current, uncertain climate.

As you may be aware, the VAT Making Tax Digital (MTD) rules came into effect on 6 April 2019. This meant VAT registered businesses, which had a turnover above £85,000, needed to have compliant bookkeeping software to maintain their books. The regulations led to the rise in cloud accounting software providers such as QuickBooks, Xero and Sage Cloud. The MTD rules are to be extended to all VAT-registered businesses in April 2022, but a charity – which may not have any VAT obligations – can also benefit immensely from the use of bookkeeping software, especially if it is cloud based.

Monitoring of income

Unlike most businesses, charities will obtain their income from several sources, such as donations or grants. Income could get lost or combined with other revenue, leading to inaccurate figures being produced. By using bookkeeping software, charities can record and split out their income by source easily, allowing them to monitor their income streams effectively.

The data could also be split further by site/departments. You may have several charity shops across a wide range of areas, for example. Using some of the applications available with cloud accounting software, a charity can obtain daily sales reports directly from the shop tills. Performance can then be monitored, with real-time information. 

Monitoring of funds

The management of funds is crucial to the survival of a charity. If you receive income from several sources, there is a possibility that some could be ring-fenced for a particular project. These are called restricted funds. They will most likely come from grants and therefore require the charity to provide a detailed costing report on a quarterly, six-monthly, or annual basis.

By using bookkeeping software, your charity can provide reports to your restricted fund providers; and make sure you accurately split out the expenses. This can help to ensure you are not potentially penalised for “spending” all available restricted funds.

Increased ability to plan strategically and potentially improve income generation

Using bookkeeping software, a charity can improve its strategic planning as it will be able to produce accurate reports at the click of a button. By seeing this information, the organisation can look to target certain areas more easily and turn weaknesses into positives, with the potential by-product being the ability to garner further income.

With the current climate being uncertain, it is less likely that the public would be willing to donate as much as they used to, so the need for grant funding has greatly increased. The ability to produce real-time information could tip the balance in a charity's favour when applying for a grant.

Why a cloud-based accounting system?

Using a cloud-based accounting system, a charity is able to obtain its information from anywhere that has an internet connection: From the office to a meeting room in which discussions are being held with grant providers. This enables the trustees to have more control over the charity's finances, meaning more informed strategic decisions can be made.

With the integration with certain applications, the bookkeeping process can be streamlined, saving time which could be spent on other important tasks. All cloud-based software allow for direct bank feeds to be created and you can benefit from invoice capture applications, such as Dext, which can be used to ensure that all expenditure is properly recorded. Budgeting tools, such as Spotlight, can help you create a plan for the future.

If your charity needs to use bookkeeping software, or wants to upgrade its current bookkeeping software, please do reach out to a charity specialist accountant. This will save you time and effort in the future.

As specialists in charity accounting, we can provide in-depth and personalised advice with regard to your charity's bookkeeping software. Contact the team for more information or advice on 0115 9555500 or email enquiries@pagekirk.co.uk.