There is more commonality between large and small charities than one might think, says Mark Hallam.

As a chartered accountant who started out as a naval officer, the colloquial naval term of my headline well defines my charted course for this article, as I explore the common themes that – perhaps surprisingly – apply to both the large and small organisations I have experienced in the charity sector.

1. Internal control

Lack of sufficient and effective internal control within an organisation can often lead to the premature demise of the finance director. A major control breakdown, like a collision at sea, can ruin rather a lot of things.

The strength of internal controls depends on the extent to which they are there in the first place, whether people know – or admit to knowing – about them, and attitudes to compliance.

Getting controls in place tends to be the easy bit, with problems usually arising because of the other two points. Achieving sufficient and effective internal control has always been my primary focus in an organisation.

2. Cost management

Any successful undertaking with a defined income depends on its budgeting, followed – like night follows day – by its cost management.

Budgeting, and the discipline and efficiency it brings, can be an area that frontline charity managers rarely seem to focus upon, leaving the finance team to fill the gaps.

Those frontline managers are always happy to detail the activities essential to achievement of the charity’s objects in the coming year, but are often less happy to identify what could be deferred to a future year without great detriment to the mission.

However, it is often actually realising those projects within the year, rather than exceeding budget, that tends to be the challenge. It is not, of course, about ‘use it or lose it’, but about the opportunity cost of not undertaking other priority projects.

3. Management accounts

I have found in organisations of all sizes that some areas can be the very best of housekeepers, but for others the evangelism has to be constant.

There is one technical accounting term that is learned very early on though, by every manager, and that is ‘budget phasing’ – invariably the excuse for every budget variance.

4. Cashflow and investments

In most charities, cash is king. Fundamentally, the issue for the FD is whether there is enough of it, available at the right time, and – when there is – putting it properly to work in charitable activity or investing it.

Everyone thinks they are an investment expert, but they rarely are. I have found it helpful to follow three basic investment rules to avoid running into trouble: clear decision-making processes, appropriate investment diversification, and agreeing the charity’s risk-and-return appetite in advance.

5. Project appraisal

There can be a tendency for colleagues in charities not to want the detail to get in the way of a good idea. But rigorous project appraisal and management are essential.

Four basic rules are: evaluate all the options; tender for external spend; adopt fixed specification and pricing; and plan well.

Tendering, with three to five parties involved, teaches you so much about your project, while adopting a fixed-specification and pricing approach caps aspiration and ensures you achieve the art of the possible.

6. Financial governance

To misquote Churchill, the UK charity governance and management model is probably the least worst way of running a charity. The focus on altruistic charitable objects does not always focus the mind on prudent financial management, but finance can come up quickly from behind if the figures go awry.

The breadth and depth of management and trustee oversight usually provides the necessary checks and balances for strategic projects, but can fail to focus on the detail and create excess inertia.

The solution has to lie in finance leaders providing focused and succinct business presentations. More detail is inevitably less.

In short, charity big ships and charity little ships do differ, but they are all sailing in the same sea. It is often just the number of zeroes that distinguishes them.

Mark Hallam is director of finance, IT & trading at Marine Society & Sea Cadets, and was previously finance & IS director at RNLI