Reserves and funders – damned if you do, damned if you don’t

Charity Trustees have a very difficult balancing act when it comes to managing their financial reserves.  On the one hand they need to hold funds to manage the risks. This is especially true in this difficult time – recently described to me by a charity CEO as “hostile, unpromising and unforgiving” - where future uncertainty means the need to keep funds for potential redundancies, office moves and close down funds is essential. On the other hand Trustees also have a duty to spend their funds on their charitable purpose and so need to be investing in service delivery and development.

So what levels are charities setting in their reserves policies? Common rules of thumb for free reserves levels used to be 6 – 9 months, 6 months or 3 months operating costs. The Charity Commission does not set reserves levels but rather its guidance states “Any target set by trustees for the level of reserves to be held should reflect the particular circumstances of the individual charity.” NCVO’s Civil Society Almanac found the average reserves held by service delivery-type charities were equivalent to an average of 8.3 months’ expenditure in 2011/12. My experience is that in recent years more charities are using up their reserves and some have had to close. I expect that average reserves levels will have fallen.

How funders treat reserves is also a balancing act.  Charities can be turned down for having reserves that are both too high (e.g. Lloyds Bank Foundation sets an upper limit of 12 months) and too low. Too few reserves make the charity a risky bet, which may not last the length of any grant and may indicate poor planning. Too high and the charity is playing it too safe, may not be fully using its funds to support its clients and may be less of a priority “They don’t need our money”.

So as a charity Trustee what do you do? Actively set and monitor reserves levels. Include reserves in your strategic and fundraising plans. And whether they might be too low or too high, be upfront in telling potential funders the reasons why.


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Independent Funders: your sector needs you

Recently I watched a presentation by a local authority commissioner. The presentation was informative and the presenter was keen on consulting with the voluntary sector. But for the whole time I was listening, I was also thinking “I am so glad I am not a commissioner”.

Why? Some of the issues were the same as any funder e.g. how do you invest in prevention when you also need to fund acute services until prevention work starts to have an impact? But other areas seemed even more difficult to work with:

• the jargon (co-creation seemed the latest buzz word);
• the long timescales (3 years from start of process until contracts awarded);
• the external drivers (not re-tendering because unhappy with the current service but because have to under European law);
• the politics (no activity for the period of the coming election);
• the players (6 commissioning groups responsible for 1 contract).

As an independent funder, I am very lucky not to be so constrained. But I believe it puts the onus on all independent funders to appreciate and exercise our freedoms - to support the unpopular, the small, the unproven and to take risks when other funding bodies are less able to.


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Where are the new charity founders?

The recent report by RBS and Unltd¹ finds that young people aged 18 – 30 are more likely than the general population to consider it important to support social causes when starting a business. However, despite these motivations to do good, far more want to start their own business (61%) or a social enterprise (27%) than a charity (12%).  

This increased interest in the blending of business and social purpose is an important new area. More social purpose organisations are trading and setting up as Community Interest Companies. And more businesses are considering social value either as a potential market or as part of their CSR with pro bono work and corporate foundations on the rise. But is there a problem for the future of the charitable sector if more young people want to set up social enterprises than charities?

We know that the charitable sector is a valuable source of jobs and work experience through volunteering. And there is certainly sense in involving young social entrepreneurs who will bring the passion and skills needed as the context that charities operate in changes rapidly. We definitely need to capture young people who can identify and capitalise on opportunities as well as being motivated by social causes. There are lots of schemes out there supporting enterprise in schools and supporting business and enterprise start ups. Perhaps it’s time to also encourage a new breed of young charity founders and leaders?

¹ https://unltd.org.uk/wp-content/uploads/2014/06/Populus_RBS-Enterprise_Tracker_2nd-Quarter_2014_Report.pdf


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Why not invite a funder to your away day?

Recently I attended a Board away day. The main purpose for the day was long-term planning but, as ever, there were also the added benefits from bringing stakeholders together and getting to know each other away from the usual day to day issues.  Of particular interest was having not just staff and management in the room but representatives from the charities we fund. Having their perspective really helped ground the discussions. One charity said they thought it was such a good idea that they were going to invite a funder to their next away day.

When I assess charities, one line of questioning is about their strategic planning and who inputs into this. Some charities take a limited approach with just staff and Trustees getting together. Other charities take the time to seek the views and input from a wide range of stakeholders including service users and external referral agencies. I can’t recall anyone ever saying that they included a funder.

I can think of some reasons why it would be tricky. For example, if the funder endorsed the plan the charity might assume that this would translate into future funding. But these expectations could be managed. What would the benefits be? It could be a useful reality check on fundraising strategies. It could bring an objective view from someone who reads lots of plans.

When thinking who to invite to your away day, think of asking a funder. What do you think the pros and cons would be? If you’ve already tried it, I’d be really interested to know how it went.

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Writing a funding bid: an act of persuasion

It is easy to treat writing funding bids as a task – something to tick off your list, to get done. But don’t forget, your bid is a form of communication and one that is seeking to persuade.

One of the classic models of persuasion directs you to appeal to the head, heart and hands so make sure you cover all three aspects in your bid:

• The head – this relates to the logical flow of your proposal. Does it make sense? Will your activities lead to the changes you claim? Do your numbers add up? Is the unit cost reasonable?
• The heart – this is where you need to get across the importance of your cause. Make sure you convey the experience of your users with examples and case studies.
• The hands – this is the call for action. What do you want the funder to do? You would not believe how many times this is not clear so make sure the ask is upfront and explicit. For example, please give us £X to do Y to make Z happen.

You never really know who is going to read your bid or have the final say on whether or not it is successful. I tend to get won over when the logic stacks up, but someone else will remember the story – and all the angles are important and valid. The added benefit of covering all three approaches means at least one should appeal, no matter which decision-maker it reaches and whatever their preferences for being persuaded might be.

How to make word count limits your friend.

Word count limits on application forms can be annoying. They stop you in your flow. They stop you conveying vital information. They are imposed by an ‘other’ who does not appreciate the importance of what you are trying to say.

 

The next time the word count limit has cut short your beautifully crafted sent...

 

don’t get annoyed. Instead treat it as a call to arms. Consider it valid advice from someone who is encouraging you to be succinct.

 

Word count limits are there for a reason. Without them some bid writers can and do go on and on. Weighed down by the importance of the bid, they put everything down for fear of leaving out the critical fact. It is a much more confident and skilful bid writer who can respond clearly and concisely. And as a reader of application forms, clear and concise is exactly what I want to see.

 

So when cut short next time, pause, re-read the question and ask yourself exactly what is wanted here? Revise your answer and be thankful for the word count limit for prompting you to practice and display your talents in brevity.

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Is competition killing collaboration?

 

I recently presented to the Lloyds Bank Foundation Board away day on the current issues facing small charities. To help me do this, I asked some charity leaders across the West what they thought – and they did not hold back! They provided me with a long list of issues. Some were positive, like having new opportunities to deliver services that were previously run by councils. And there were lots of negatives – most of which, unsurprisingly, were related to funding such as the problems with payment by results.

One theme that came through really strongly was the impact of the shift to commissioning. Examples were:

• the ‘big players’ who have come in and won large contracts at the expense of small, local charities;

• charities who shared information about local issues and needs with a large provider on the understanding that they would become a sub-contractor only for these sub-contracts never to materialise;

• problems in partnership working as partners were reluctant to share knowledge that could be taken to strengthen another’s bid.

The impact has not just been on the loss of funding or the frustration with the new regime. This increased competition has also made people more guarded. It is a climate of competition not collaboration.

If this is your experience, how do we preserve the values of openness and collaboration in this increasingly competitive environment?

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