Managing finances

Financial management means managing money. It refers to how you plan, organise, use and control money within your corporation. Good financial management helps a corporation achieve its goals, meet its obligations and remain accountable to its members.

Financial literacy is knowing about and understanding financial matters. It means you can read, understand and ask questions about financial matters. You can use that understanding to make informed decisions for the good of your corporation.

Why financial management matters

Every corporation needs money to operate. Whether income comes from grants, contracts, business activities or other sources, directors are responsible for ensuring the corporation's money is managed carefully and used for the benefit of the corporation.

Strong financial management helps a corporation:

• deliver services and activities as planned
• meet its legal and funding obligations
• pay employees, suppliers and other expenses on time
• make informed decisions about future activities
• identify financial problems before they become serious
• build trust with members, funders and business partners
• support the long-term sustainability of the corporation.

Poor financial management can expose a corporation to significant risks, including financial losses, funding breaches, unpaid debts and a loss of confidence from members and stakeholders.

What financial knowledge do directors need?

You do not have to be an accountant but you need to be financially literate.

You should have enough financial knowledge to:

• read financial reports
• understand basic financial information
• know how decisions affect the corporation's finances
• be able to tell when something does not look right.

What are directors responsible for?

Every director, and the secretary of a large corporation, is responsible for overseeing the corporation's financial management. While staff, accountants, bookkeepers or managers may handle the day-to-day financial administration, directors remain accountable for ensuring the corporation is financially well managed and sustainable.

Directors should understand the corporation's financial position so they can make informed decisions about its priorities, risks and future direction.

As a director, you are responsible for:

• Approving budgets and setting financial goals.
• Considering financial risks and opportunities when making decisions.
• Making sure the corporation has appropriate financial policies, procedures and internal controls to protect its money, assets and other resources.
• Making sure the corporation's money is spent appropriately and for the benefit of the corporation.
• Ensuring the corporation meets its legal obligations, including tax, reporting and record-keeping requirements.
• Receiving, reading and understanding financial reports, including information about income, expenses, assets, liabilities and cash flow.
• Monitoring the corporation's financial performance and position, including:
  • understanding where the corporation's money comes from
  • understanding how money is being spent
  • monitoring cash flow
  • comparing actual results against the approved budget.
• Ensuring financial reporting is a standing agenda item at board meetings and that directors receive regular financial information, including budget variance reports.
  Asking questions and seeking further information whenever you do not understand the financial information or identify potential risks or warning signs.
• Making sure the corporation can pay its debts when they are due and taking action if there are concerns about its financial position.
• Ensuring accurate financial records are kept, including records that explain the corporation's financial decisions and activities.
• Approving the corporation's annual financial report and satisfying yourself that the financial statements:
  • have been prepared in accordance with Australian Accounting Standards
  • give a true and fair view of the corporation's financial position and performance.
• Not allowing the corporation to trade while insolvent. If there are concerns that the corporation may not be able to pay its debts when they are due, directors should act promptly, seek professional advice and avoid allowing the corporation to incur further debts that it may not be able to repay.

You can get help, but you are still responsible

Directors can ask accountants, bookkeepers, auditors or other experts for help.

However, directors are still responsible for understanding the information and making decisions. You cannot simply rely on someone else.