Financial sustainability. Kate Sayer 16 October 2017

Transcription

1 Financial sustainability Kate Sayer 16 October 2017

2 What do we mean by financially sustainable? Doing the most we can For our beneficiaries And keep doing it 2

3 Financially sustainable impact Good outcomes for beneficiaries QUALITY Impact = outcomes resources put in

4 What are reserves?

5 What are reserves? Unspent unrestricted reserves Restricted Unrestricted Endowment Restricted income Designated General

6 Why hold reserves? Finance for expansion and new projects Provisions for known liabilities e.g. pensions Designated funds Continuity of charitable activity fluctuation in income Working capital cashflow profile General reserves 6

7 What level do we need? Provisions for known liabilities e.g. pensions Continuity of charitable activity fluctuation in income How well have we defined the risk or liability? Do we know the probability, timing and amount needed? How good is our income forecasting? How diverse is our income? Reliability? Working capital cashflow profile How well do we match incoming to outgoing resources? Timing of funding 7

8 Right level of reserves Predictable income Adjust spend to fit income Use reserves Flexible cost base Regularly monitor income Danger zone High committed costs Unreliable income 8

9 Spend or save? Where is your organisation on the reserves quadrant? What are the risks you need to cover with reserves? If you spend more to help more beneficiaries, what is the risk? If you hold more in investments, what is the risk?

10 Level of reserves needed Take into account reliability of funding and risk profile on income Consider the level of commitments and how long you are committed for Think about moral obligations as well as contractual commitments Plan cashflow

11 Reserves - action Base on an assessment of the risks Describe as a range Take a longer term view you can use reserves and replace 11

12 Investment strategies 12

13 What s a good investment strategy? Maximise the return For least risk possible Beat inflation Keep the capital safe 13

14 Capital and revenue Gains Capital Income Spend 14

15 Last 20 years value of portfolio with comparison to inflation 90,000 80,000 70,000 60,000 50,000 40,000 30,000 Difference 16m 20,000 10,000 0 Inflation-related value Value of portfolio 15

16 Last 10 years - income and capital gains Investment Income Capital gains 16

17 Two approaches Income-only approach Only the income (dividends, interest) produced and paid over is withdrawn on a regular basis Total return Either income or capital growth is withdrawn from the portfolio on a regular basis 17

18 Adopting total return Need to understand your expenditure plans Cashflow forecast Do you have permanent endowment? Follow CC 2013 regulations and guidance 18

19 Total return policies Set a spending policy as % of portfolio Average portfolio value over three years using quarter-end values Sustain spending And Maintain real value of the investment fund 19

20 Other investments 20

21 Ethical investment Still a financial investment Need to have a policy Avoid specific investments because of conflict with charity s objects Avoid specific investments because you may lose supporters or beneficiaries Can make positive choices on same grounds No significant financial detriment 21

22 Investment property May be held as part of investment portfolio (property funds) Generate dividends or interest May be held directly Generate rental income Property management costs Balance sheet current market value Gains or losses are part of income and expenditure 22

23 Programme related investment Charitable expenditure Motivated by charitable purpose No requirement for a financial return Includes: Loans to charities Investment in property for charitable activities Underwriting a loan or commitment for another charity 23

24 Social investments Purpose: Further charitable objects and Achieve a financial return No requirement for precise monetary value on return Must be in charity s interests Specific power under the Charities (Protection and Social Investment) Act

25 Examples of social investment Lending to a charity or social enterprise Buying shares in a CDFI vehicle that lends to charities and similar Placing deposits in a CDFI Buying shares in a social purpose co. e.g. to buy a building Social impact bond Property Providing a guarantee 25

26 Conclusions Better risk management can mean that you can have lower reserves You can get more funds to more beneficiaries more quickly You can make your funds work harder

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28 Further information Beyond Reserves published by sector bodies with Sayer Vincent in June 2012 CC19 Charities reserves (Jan 2016) CC14 Charities and investment matters CC guidance on permanent endowment