Effective planning for charitable organisations is central to keeping services running, staff paid and beneficiaries supported, even when funding is uncertain. Trustees and senior leaders feel the squeeze from rising costs, tighter public finances and donors who expect clear evidence that money is well used.
The charity sector is large and exposed to these pressures. At 31 March 2025 there were 170,862 charities on the Charity Commission register, overseeing around £102bn of income and £101bn of spend in 2024/25 (Charity Commission, 2025). When problems arise in planning for charitable organisations, they impact real people – patients, service users, students and communities.
At the same time, generosity remains significant. The UK public donated an estimated £15.4bn to charity in 2024 (CAF, 2025). That level of income needs steady hands, strong processes and honest reporting. Good planning for charitable organisations will not remove all risk, but it can make shocks manageable rather than existential.
In this article, we look at practical steps for financial resilience planning for charitable organisations – from managing restricted and unrestricted funds to cashflow forecasting, reserves, income diversity, cost control and reporting. If you would like a second pair of eyes on your plans, our charity specialists are here to help.
Why planning for charitable organisations matters now
Planning for charitable organisations is not just about compliance. It is about protecting mission, staff and beneficiaries against avoidable financial shocks.
Recent research shows that public trust in charities remains relatively high, with 57% of people reporting high trust in charities in 2025 (Charity Commission, 2025). That trust depends on charities being able to show they are stable, well governed and transparent.
For most organisations, the main pressures are:
- flat or falling voluntary income
- rising staff and premises costs
- greater expectations from funders on reporting and impact
- increasing regulatory focus on reserves, governance and controls.
Against that backdrop, planning for charitable organisations needs to move beyond year-end accounts plus an annual budget. Trustees should expect to see forward-looking cashflow forecasts, clear reserves policies and regular stress-testing of plans. When funders or regulators ask difficult questions, having this groundwork in place makes responses faster and more confident.
Getting restricted and unrestricted funds working together
A solid starting point for planning for charitable organisations is understanding how restricted and unrestricted funds fit together.
- Restricted funds must be used for a specific purpose or project, as set out by the donor or funder.
- Unrestricted funds can be used for any of the charity’s purposes and are the usual base for reserves.
Charity Commission guidance on reserves makes clear that restricted funds fall outside the definition of reserves, but can influence the level of reserves needed (Charity Commission, CC19). If a charity holds large restricted balances for core activities, trustees might be comfortable with a lower unrestricted reserve; the reverse may also be true.
Here are practical steps to take.
- Fund structure: Map each income stream to the right fund – restricted, unrestricted or designated – and document the conditions in plain English.
- Chart of accounts: Set up codes that clearly distinguish restricted and unrestricted income and spend; avoid catch-all codes that blur the picture.
- Authorisation rules: Agree who can sign off expenditure from each fund and what checks are needed to confirm eligibility.
- Reporting: Provide trustees with regular reports that show fund balances, movements and any concerns about restrictions or underspends.
If your current reports do not clearly separate funds, that is a priority to address. We often support charities to review this structure and can work alongside your bookkeeping and finance team to keep changes practical and proportionate.
Cashflow forecasting and realistic reserves
Reserves are central to financial resilience planning for charitable organisations, but they need to be based on real numbers, not guesswork.
Charity Commission reserves guidance emphasises that there is no single “right” level of reserves; trustees should set a target that fits their charity’s risks, plans and income profile. For many organisations, a reasonable starting point is covering between three and six months of core operating costs, then adjusting for specific risks, such as heavy reliance on one contract.
Two linked tools are essential.
- Cashflow forecasting: Build a rolling 12–18 month cashflow forecast, updated at least quarterly. Include realistic timings for grant claims, contract payments, fundraising events and major costs.
- Reserves modelling: Translate your reserves policy into numbers. Show your minimum, target and current reserves position, and how this changes under different scenarios.
Useful inclusions in a cashflow model include the following.
- Debtor and creditor timings: When grants are approved versus when cash arrives; payment terms for key suppliers.
- Seasonal patterns: Peaks in fundraising or service delivery that change income and spend.
- Contingencies: Modest allowances for unexpected maintenance, staff changes or project delays.
You do not need complex software to start. Many charities run effective models in spreadsheets, as long as assumptions are documented and updated. You can also talk to our team if you want help setting up a model that fits your size and structure.
Diversifying income and controlling costs
Another strand of planning for charitable organisations is reducing over-dependence on a small number of funding sources while keeping costs under control.
Income diversity does not mean dozens of small, hard-to-manage streams. It is about balance. For example, a charity that relies on one local authority contract for 70% of income is more exposed than one that balances contracts, grants, individual giving and trading.
Carry out these practical actions.
- Income mix review: Assess what proportion of income comes from the top three funders or contracts; identify “single points of failure”.
- Gift Aid optimisation: Ensure you are claiming Gift Aid where possible. Under current rules, charities can claim an extra 25p for every £1 donated by eligible UK taxpayers.
- Trading and VAT: If your trading income is growing, review whether you should register for VAT and whether a trading subsidiary would help manage risk and tax.
- Exit planning: For major grants or contracts, agree early what happens when funding ends and how you will manage staff and service commitments.
On costs, simple steps often make a real difference.
- Cost categorisation: Split costs between direct charitable activities, support costs and fundraising so you can see where money really goes.
- Scenario planning: Model the impact of a 10% cut in income from your top funder, or a 10% rise in salary costs – what decisions would you need to make and when?
- Procurement checks: Periodically benchmark key contracts such as IT, insurance and premises; small savings can release funds for front-line work.
Reporting, risk and trustee decision-making
Good reporting underpins effective planning for charitable organisations. Trustees and senior leaders need timely, clear information that helps them act, not just tick boxes.
Key elements include the following.
- Management accounts: Monthly or quarterly accounts comparing actuals to budget, with clear explanations of variances.
- Fund reports: Movements and balances by restricted and unrestricted fund, showing any overspends or large underspends that require action.
- Cashflow reports: Short, focused summaries of current and projected cash positions, highlighting any pressure points.
A simple risk register is also valuable. Financial risks such as loss of a major funder, unexpected property costs or compliance issues should be clearly recorded, with controls and contingency actions noted.
Public reporting matters too. The Charity Commission’s guidance on reserves and annual reporting sets expectations for how policies and figures are explained. Clear, honest narrative reporting builds confidence with donors and regulators alike.
In a context where public trust in charities is closely watched, taking reporting seriously is part of your resilience plan, not a side issue.
Protecting your charity’s future
Financial resilience planning for charitable organisations is an ongoing discipline, not a one-off project. The aim is not to eliminate all risk, but to ensure your trustees and leadership team can see problems early, understand your options and take measured decisions.
If you recognise any of the warning signs below, now is the time to act.
- Budgets set once a year then forgotten.
- No clear reserves target, or one that nobody can explain.
- Limited visibility of restricted fund balances.
- Cashflow managed mainly through watching the bank balance.
Addressing these issues does not have to be overwhelming. Start with one or two priorities – for example, a basic 12-month cashflow forecast and a short, practical reserves policy aligned with Charity Commission guidance. As you build confidence, you can refine your planning for charitable organisations, report more clearly to stakeholders and support your staff teams with better information.
We work with charity finance leaders who want calm, steady support rather than jargon. If you would like to review your planning for charitable organisations, or sense-check your reserves and cashflow, get in touch with us. Together, we can help you protect your charity’s mission and give trustees the confidence to plan ahead.
