kate sayer 16 october 2017 - seafarers.uk · •‘beyond reserves’ published by sector bodies...
TRANSCRIPT
Kate Sayer
16 October 2017
Financial sustainability
• Doing the most we can
• For our beneficiaries
• And keep doing it
What do we mean by financially sustainable?
2
Financially sustainable impact
Good outcomes for beneficiaries
Impact = outcomes resources put in
QUALITY
What are reserves?
Unspent unrestricted reserves
What are reserves?
Restricted
Endowment Restricted
income
Unrestricted
Designated General
Why hold reserves?
6
Finance for expansion and new projects
Provisions for known liabilities e.g. pensions
Continuity of charitable activity – fluctuation in income
Working capital – cashflow profile
Designated
funds
General reserves
What level do we need?
7
Provisions for known liabilities e.g.
pensions
Continuity of charitable activity –
fluctuation in income
Working capital – cashflow profile
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?
How well do we match incoming to outgoing
resources? Timing of funding
Right level of reserves
8
Adjust
spend to
fit income
Use
reserves
Regularly
monitor
income
Danger
zone
High committed costs
Predictable income
Flexible cost base
Unreliable income
• 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?
Spend or save?
• 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
Level of reserves needed
• Base on an assessment of the risks
• Describe as a range
• Take a longer term view – you can use reserves and replace
Reserves - action
11
Investment strategies
12
• Maximise the return
• For least risk possible
• Beat inflation
• Keep the capital safe
What’s a good investment strategy?
13
Capital and revenue
14
Capital
Gains
Income Spend
Last 20 years – value of portfolio with comparison to inflation
15
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Inflation-related value Value of portfolio
Difference £16m
Last 10 years - income and capital gains
16
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Investment Income Capital gains
• 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
Two approaches
17
• Need to understand your expenditure plans
• Cashflow forecast
• Do you have permanent endowment?
• Follow CC 2013 regulations and guidance
Adopting total return
18
• 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
Total return policies
19
Other investments
20
• 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
Ethical investment
21
• 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
Investment property
22
• 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
Programme related investment
23
• 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 2016
Social investments
24
• 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
Examples of social investment
25
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
• ‘Beyond Reserves’ published by sector bodies with Sayer Vincent in June 2012
• CC19 Charities reserves (Jan 2016)
• CC14 Charities and investment matters
https://www.gov.uk/government/publications/charities-and-
investment-matters-a-guide-for-trustees-cc14
• CC guidance on permanent endowment
https://www.gov.uk/government/publications/total-
return-investment-for-permanently-endowed-charities
Further information