Introduction to financial management

Financial management is managing money received or spent. Doing it well is essential to any community group's survival. Financial management has three basic parts to it:

  1. planning (on how to raise and spend money)
  2. record keeping
  3. reporting.

This section covers these three aspects of financial management and provides guidance and samples of financial documents for organisations using either a computer accounting package or a cash book accounting system (using either a manual or computer spreadsheet). In addition to financial management, the section also covers tax matters and details on the requirements for filing annual returns and financial statements.

Policies and procedures

In managing your organisation's finances, you should have some set policies and procedures that must be followed when it comes to looking after money. This will make it easier to keep track of the money that comes into the organisation and how it is spent.

Some areas to cover in your policies and procedures include:

Cash receipting:

  • writing receipts for cash received such as donations, membership fees, etc.
  • banking all money received (i.e. don't use it to pay for costs)
  • banking cash as soon as possible after it is received.

Making payments:

  • pay for all purchases and expenses (except for small, petty cash items) by cheque, direct credit, or Internet banking so there is a record of the transaction
  • have a system for approving payments
  • only pay a bill when an invoice has been received
  • have designated cheque signatories and two signatures on every cheque (or two authorising codes for internet banking)
  • have a system for filing invoices
  • have a petty cash system for small payments with procedures to balance and reimburse it.

TIP: For more information on financial policies and controls for your group, visit the New Zealand Institute of Chartered Accountants website: http://www.nzica.com/

Uses of financial information

Financial information can be used by management, workers, Inland Revenue, Charities Services, funding agencies and the general public. It is used to assess:

  • the organisation's financial position
  • the organisation's performance
  • that the finances are being used to meet the organisation's objectives
  • that results are cost-effective
  • all legal requirements are being met
  • the extent to which planning for the future is being undertaken.

Key financial terms

Four key terms used in financial reports are:

  • assets what the business owns or monies due to it e.g. cash, equipment, accounts receivable, inventory
  • liabilities what the business owes e.g. bank overdraft, creditors, loans, staff leave not yet taken
  • expenses the costs incurred by running your business e.g. wages, rent, phones
  • revenue or income what you earn e.g. grants, membership subs.

For more financial terms please see the glossary.

Acknowledgements

The three main sources of information for this section were: Financial Training for Not-For-Profit Community Groups developed for the Auckland Council; training supplied to not-for-profit groups by the Community Accounts Mentoring Service (CAMS); Inland Revenue and Charities Services material.

PLEASE NOTE: the information in this section is not intended to take the place of legal advice. Laws can change regularly. The authors of this publication take no responsibility for the results of any action taken on the basis of information contained in this section or for any errors or omissions. Readers should talk to a lawyer or contact their local Community Law Centre (http://www.communitylaw.org.nz/) for further legal advice.
 

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Contents of the Community Resource Kit