When the problem is having too much money

David Saint, Chairman

This may seem an extraordinary topic to explore in a charity sector newsletter, but over the past 12 months Action Planning has worked with at least 6 organisations for whom this was a significant issue.

In fact of course this is relatively common – several ‘household name’ organisations have expanded their remit to enable them to deliver more services in more places than was originally envisaged, and over the years many charities have found themselves in the position that the needs they were formed to meet no longer exist. But despite their best endeavours some organisations find it hard to spend as much as they have available for their beneficiaries.

How much is “too much” anyway? There will be at least two elements to the answer to this question:

• Capital (often described as ‘reserves’, but in truth this can cover much else besides)
• Annual income versus expenditure – does the charity more or less break even every year, or is it generating significant annual surpluses? If so, these of course get added to the ‘reserves’.

The Charity Commission issues helpful guidance on determining the right level of reserves for each charity (Charity reserves: building resilience), although it is also clear that it is up to each charity to develop its own reserves policy. The important thing is to be clear why certain amounts of money (or other realisable assets) are being held, rather than spent on the beneficiaries. And then to decide how best to deploy anything surplus to that requirement, for the beneficiaries.

At one level, the options for addressing this problem are very simple:

• Bring in less (but counter-intuitive)
• Spend more – capital, revenue, invest in capacity building, broaden Objects

Bring in less

This is counter-intuitive for most charities – especially those with employed fundraisers, but it has to be seriously considered. On several occasions we have been asked to help a charity review its fundraising strategy so it can raise more money, when one of the main barriers to successful fundraising is how much money the organisation already holds. And sometimes the fundraisers themselves (rightly) find it hard to be motivated and convincing, when they aren’t sure that the charity really needs the extra money. In one of these cases, we advised the charity explicitly to develop a ‘fund-spending strategy’, in which even some of the fundraisers were deployed to help identify potential beneficiaries, and help them secure the support they needed.

In today’s target-driven culture, trustees expect to see regular increases in income. Chief Executives expect to see their fundraisers bring in more money, year on year. Strategic Plans, Business Plans and Fundraising Strategies almost always project income growth. And for larger organisations their positions in the charity ‘league tables’ are a matter of pride. However, if yours is one of those charities that genuinely struggles to spend as much as it raises, the time may be right to ask that counter-intuitive question – how can we raise less?

Spend more

Spending more is easy, of course. But spending more wisely, and with maximum impact for the beneficiaries, can often be more difficult. It’s worth taking time to dig into the roots of problem – in our particular situation why is it difficult to spend more?

• Are we reaching all the beneficiaries that exist, or is something stopping us finding them, or them finding us? Should we be spending some of our surplus money on a programme of reaching out to those beneficiaries?
• Is our ‘problem’ (or opportunity) too much capital, or an ongoing revenue surplus? If the former, we may not want to start an activity that will become an ongoing drain on our resources, but we could do something substantial, as a one-off project. And if we have surplus revenue but little or no capital, we may feel that without the up-front funds we can’t kick-start something big. But it may be possible to borrow the capital on the strength of the revenue surpluses, or even to fundraise for it because the need is demonstrable.
• Do we need to invest in capacity building, to achieve step change in our operations? Have we reached a plateau, but whilst there is more than could be done we lack the capacity to do it? Organisations often get stuck in a rut of scale and activity. Some of our clients have asked us to facilitate strategic planning sessions that explore the ‘what if’ questions. What if we took on one or two more people, or created a whole new team, or department? What if we opened a second site, or region, or country? What if we were to expand through merger? What if we were to broaden our Objects in some way? And so on.

In these days of increased public scrutiny, charities simply can’t get away with sitting on money they don’t need and can’t spend (not that it was ever right to do this, of course!) So perhaps take a moment to look again at your Reserves Policy. Could you justify it to a donor, or a beneficiary? And then look again as your actual reserves (including capital assets), and any annual revenue surpluses. Can they be justified against your Reserves Policy?

If not, your charity’s problem may be that it has too much money, and should find a way of tackling this as a matter of urgency.

If you would like to talk to David Saint about how he can help your trustees and senior management team work through these or other issues, you can contact him via office@actionplanning.co.uk.