I don’t believe I’ve ever read an article or blog talking about a golden age of charity finances. I’ve certainly never written one. Commentators or advisers (like me) always seem to talking of the risks and be full of doom and gloom.
But has there ever been a time when all the financial headwinds seem to be blowing in the wrong direction? Cost of living putting pressures on the fundraising market, government fiscal deficit raising prospect of funding cuts across the board, inflation eroding the value of what income is still coming through, a tight labour market putting pressures on staffing costs, prospect of reduced corporate profits hitting investment income.
The political shenanigans of the last few months have done little to help even if the (latest) Chancellor’s statement last month did allay some of the concerns raised by the previous Chancellor’s plans (see CFG’s Caron Bradshaw’s views on that here).
But even with government spending commitments being honoured for the next two years, there will still be a decline in the real value of those commitments. At least there were no new tax nasties for charities to content with!
So what strategies are available to charities to stay resilient against these head winds?
Just in the last few days there was a CAF survey saying that 51% of charities were using reserves to cover core costs. Is that acceptable? If you have the reserves and you see the current imbalance cause by the cost of living as temporary, then yes – surely this is precisely what reserves are there for.
And if you have a strong enough balance sheet are there other ways you can support your objectives by helping others? Age UK announced last week that they were releasing £5m of their reserves to support local Age UK organisations.
The smart use of reserves does presume that you understand your reserves properly. What are the other financial risks you are exposed to? How low can you go even on a temporary basis? What other strategies are available to you to reduce other risks (income diversification? Flexing the cost base?). You can contact us for free access to our recent Charity Reserves webinar to learn more.
Exploiting all possible sources of income is more of a priority than ever. The charities that had most success in maintaining fundraised income during the pandemic focussed on their core supporters. Are you claiming all the gift aid that you can? There are still substantial amounts that could be eligible that are not being claimed on (see our Made Simple guide for more information).
As charities broaden their income base they do expose themselves to potential tax issues – do not allow these to deter you! Seek and take the necessary advice at the outset and while in some cases there may be additional compliance costs (e.g. the need for a trading subsidiary), can you afford not to? Our tax team are busy helping charities navigate these challenges and they can help you too.
If you are in receipt of government grants or other forms of institutional funding, it is imperative that you understand their compliance requirements. Not only does this help ensure that funds are not clawed back but it also means you can be confident you are allocating all the costs you can to these funding streams. This in turn reduces the burden on your precious unrestricted funds. We had over 100 attend the live session of our Managing Restricted Funds session last month – you can access it to too by contacting us.
It is perfectly understandable, given the challenges of the last few years, for trustees to be feeling anxious. They need reassurance that they are doing the right thing – and by that I mean the right thing for their charity’s beneficiaries. We can support you trustees in building confidence through short training sessions or workshops focussed on trustee responsibilities, risk management, financial governance and more.
Contact your Sayer Vincent audit partner or Anneliese for an initial chat on how we can help.