Weakness of charities' balance sheets is holding the sector back, says Austwick

News

Weakness of charities' balance sheets is holding the sector back, says Austwick 10

Finance | Tania Mason | 23 Nov 2010

Dawn Austwick, chief executive of the Esmée Fairbairn Foundation, has described as “shocking” the role that funders play in encouraging charities to have weak balance sheets.

At an investment seminar organised by JP Morgan earlier this month, Austwick said the single most important thing that civil society organisations need in order to be ‘investment-ready’ is strong balance sheets.

“But the weakness of balance sheets in the voluntary sector and, I’m afraid, the role that funders have played in encouraging voluntary organisations to have weak balance sheets, is shocking,” she said.

“This is something we really need to look at as a sector.”

Speaking to Civil Society afterward, Austwick explained that the tendency of funders not to give grants to organisations with high reserves and strong assets, “subconsciously discourages those organisations from building robust balance sheets”.

“It’s symptomatic across the sector,” she said. “We have got ourselves into a bit of a pickle and we need to unravel it because it is inadvertently making things worse for the sector as a whole.

“We need to think about building up our organisations because they need to be sustainable.”

She suggested that funders should examine why they are making the decisions they make and how they might change this process to encourage greater resilience and a more long-term approach to financial planning among the charities they fund.

Place a comment

Nigel Scott
Course Director
London South Bank University
25 Nov 2010

Thanks for rasing the issue, Dawn! Charities can help themselves by having well developed Reserves Policies which explain why they hold them - for investment in new activities, to support cashflow, to allow for funding gaps, etc. State the positive reasons, not the negative ones and then work to educate the funders to understand what is needed.

[Reply]

Peter Jackson
Head of Operations and Performance
Breakthrough UK Ltd
26 Nov 2010
Response to [Nigel Scott]

Charities are often in a 'can't win' situation with funders where their financial status is used as a convenient excuse for refusal of support regardless of the position, ie where the charity has robust reserves "you don't demonstrate need" and conversely where the charity has low or no reserves "you are finacially exposed and an unacceptable risk". A well founded and clearly articulated Reserves Policy is good practice regardless of the position but would only help where funders have a consistently applied policy of their own viz charities' reserves.

[Reply]

Rowena Lewis
2010 Clore Social Fellow
Clore Social Leadership Programme
25 Nov 2010

Thank you Dawn for speaking out on this important issue which is just one facet of a wider debate around the responsibilities grant making organisations have in shaping the sector we know today - tightrope reserves, innovation vs sustaining good practice, a culture of shying away from honest discussions between funder and funded on what works and what doesn't work - can all be resolved by funders taking the first step to welcome honest dialogue.

[Reply]

Hugh Cripps
CEO
PECT
24 Nov 2010

Well done Dawn.
The pressure on a CEO to maintain a sustainable organisation with a stable, happy, efficient staff vs not appearing to 'sit on' funds that should be spent on the beneficiaries is an ongoing battle. Only made worse by the sudden reduced funding from local authorities and other statutory agencies.

[Reply]

Keith Airey
Development officer
Kingstanding Community Developments
23 Nov 2010

I totally agree with the above comments and also the replies. As I am involved with several small charities, we realsie the need for some reserves and look at around 3 - 6 months as a target, this ensures that we have reasonable cashflow, if as often is the case there are delays in promised funds arriving.

However the problem comes when you are aiming to expand, say by 50% then these reserves are challenged, but essential to allow for that expansion. Without the reserves funders say you are too small as you look at bigger funders and yet the smaller funders you then often find you have gone above the level of giving. I have often asked how do you build a reserve, as in many ways it goes against the thoughts of funders, who clearly want to see the funds they give you spent, I would love an authorative answer.

[Reply]

Carl Allen
23 Nov 2010

Investment income! Who remembers the Icelandic investment debacle?

High reserves? What about the charity beneficiaries? Okay if reserves are for a specific purpose besides being reserves.

And what is defined a a strong balance sheet for a private sector company may not be right for a charity.

[Reply]

John Marshall
CEO
Centrepoint Outreach
23 Nov 2010

I have often found that Local Authority Officers and others do not understand the duty of a responsible 'free reserves' policy and just think as Sue has said - 'you are well off'.
The Charity Commission view indicates a balance is required:

"Reserve levels that are set too high tie up money which could and should be spent on charitable activity. If they are too low, the future of the charity may be put at risk. "

[Reply]

Fiona Fountain
Consultant
FFA
23 Nov 2010

At last! A funder who appreciates the illogicality of so many trusts and foundations who don't appreciate the value of capital reserves.

In many so-called "wealthy" charities, investment income pays for core costs freeing the charities to innovate and develop projects that funders could put their names to - if only they could appreciate the sense in doing so.

Well done to the trustees of Esmee Fairbairn for appointing a CEO with common sense!

[Reply]

Sue Chance
Head of Fundraising, Trading & PR
Compton Hospice
23 Nov 2010

I 100% agree with Dawn Austwick's comments! We have reasonable reserves which means we can continue to provide care for terminally ill people into the future. Because of this, we miss out on many grants and major donations as we are considered to be "well off". You would think that funders would be pleased to know that their money was going to a charity which clearly demonstrated its services were sustainable, rather than potentially put money into a project which lacks longevity.

[Reply]

ER
23 Nov 2010

Well said! And the resistance to building reserves is not always subconscious but could even be planned so that the charity meets the criteria of having low reserves.

I would like to hear the logic of preferring to give to charities with a lower chance of surviving to deliver the project.

[Reply]

Comments

[Cancel] | Reply to:

Name *

Email *

Organisation

Job Title

Comments *

Verification *

* Please read our Community Standards

Close »

Community Standards

The civilsociety.co.uk community and comments board is intended as a platform for informed and civilised debate.

We hope to encourage a broad range of views, however, there are standards that we expect commentators to uphold. We reserve the right to delete or amend any comments that do not adhere to these standards.

We welcome:

Robust but respectful debate
Strongly held opinions
Intelligent relevant discussion
The sharing of relevant experiences
New participants

We will not publish:

Rude, threatening, offensive, obscene or abusive language, or links to such material
Links to commercial organisations or spam postings. The comments board is not an advertising platform
The posting of contact details for yourself or others
Comments intended for malicious purpose or mindless abuse
Comments purporting to be from another person or organisation under false pretences
Gratuitous criticism, commentary or self-promotion
Any material which breaches copyright or privacy laws, or could be considered libellous
The use of the comments board for the pursuit or extension of personal disputes

Be aware:

Views expressed on the comments board are left at users’ discretion and are in no way views held or supported by Civil Society Media
Comments left by others may not be accurate, do not rely on them as fact
You may be misunderstood - sarcasm and humour can easily be taken out of context, try to be clear

Please:

Enjoy the opportunity to express your opinion and respect the right of others to express theirs
Confine your remarks to issues rather than personalities

Together we can keep our community a polite, respectful and intelligent platform for discussion.