‘Impact’ should be the beating heart of charity finance…not just a reporting requirement

When a word or phrase grows in popularity and is used with increased frequency, it becomes easy to assume that we know what we mean by it, and that a consistent definition is employed by all.

Take ‘impact reporting’ as an example.

Without a doubt, this has entered the common vernacular of the charitable sector, and it absolutely deserves that. ‘Impact’ should, without question, be the norm in charity finance, but we’re in danger of losing its true value if we only consider it at the point that reporting takes place. Would ‘impact financing’ be a more appropriate phrase to employ?

A key issue that we have here, is that because we’re considering ‘impact’ through the potentially narrow view of the reporting function, we focus too much on the outcomes, the ‘how we spent the money, and the impact it had’, and not always enough on the ‘how we should, or could, spend the money to achieve the greatest impact’.

Take as an example a hospice. Annual funding from its myriad efforts across retail, sponsorship, lotteries and the like, may support 15 inpatient beds, whilst the same level of funding could deliver at-home care to a far larger number of beneficiaries. In this scenario, the measure of impact is balanced between quantity and quality – more people may benefit from ‘lighter-touch’ hospice support, versus fewer receiving a gold-standard experience.

If we ask which of these outcomes addresses the aims and beliefs of the organisation, arguably they both do. They both have clear impact, and whichever avenue the hospice in question follows, both can be reported with confidence and pride.

Herein lies some of the problem; organisations fear or avoid impact reporting simply because of the inconsistent nature of the definition of impact itself. Sometimes ‘good enough’ IS enough, especially where ‘perfect’ is out of reach.

When it comes to the reporting of impact itself, we’ve all seen celebratory claims of ‘we’ve reached 10% more this year than we did last year…’, rarely in the same breath do we see ‘but we’ve also increased expenditure by 50% in order to do so…’

Simply, a lot of impact reports don’t dive deep into the money spent, if indeed they mention it at all!

Annual accounts, done properly, should seamlessly weave together the money spent (and the considerations that went into those spending decisions), and the outcome (the ‘impact’) of that expenditure. Rather than simply a set of figures, do the accounts meaningfully convey the whole story of the charity? Funds raised by the charity are the key vehicle that drive forward its mission and deliver its impact, however categorised. The accounts should, therefore, detail the allocation of funds in a way that illustrates the charity’s vision and mission. If they do, then the organisation’s impact has been reported too.

This article was originally written on the Sayer Vincent website.

Jonathan is running a session on Impact Reporting at the Charity Accountants’ Conference, taking place online on 13-14 November. Learn more and book your tickets here.