Do local charities have enough cash in reserve?

Charities are being warned that maintaining funding and holding sufficient reserves have never been more important as the sector goes through a period of dramatic change, according to a Birmingham-based investment management expert. 

It comes as new research for accountancy, investment management and tax group Smith & Williamson reveals that almost a third (30 per cent) of charities have less than six months’ expenditure held in reserves. 

The finding is included in a new report – Where next for the charity sector? – which draws on a survey of senior charity decision-makers and was conducted in partnership with Charity Times.  

Smith & Williamson’s publication provides insight into the key changes, challenges and opportunities facing the sector as it goes through a period of dramatic change.  

On the theme of short-termism, the research reveals that almost half (49 per cent) of charity decision-makers become concerned about poor investment performance after just one year – a period of time that should not worry long-term investors. 

Key points from the research include:  

* Reserves – 31 per cent of respondents said they hold six to 12 months’ expenditure in reserves and 25 per cent said they have more than 12 months’ worth. 30 per cent of charities have less than six months’ expenditure held in reserves. 

* Income sources – Legacies are seen as the most uncertain income source (according to 38 per cent of respondents), followed by annual fundraising activity (29 per cent). 

* Risk – Securing funding is considered the biggest risk for charities (according to 42 per cent of respondents), followed by reputational damage (29 per cent).   

* Benchmarking – 49 per cent of respondents said poor portfolio performance would be a concern after a year, while 33 per cent said they would worry after three years.  

* Ethical and ESG – 65 per cent of charities said ethical and ESG (environmental, social and governance) considerations are essential for their charity. 

Adrian Taylor, partner, investment management for charities at Smith & Williamson in Birmingham (pictured), said: “The charity sector is undergoing a period of dramatic change.  

“Brexit, institutional scandals and the question of how to engage millennials have all promoted intense discussions on trustee boards across the country. In what are uncertain times, maintaining funding and holding sufficient reserves has never been more important. 

“Holding less than six months’ expenditure in reserves just doesn’t feel sufficient. Making strategic planning decisions is very hard if you’re living so hand to mouth. 

“Charities need to take a long-term view across their finances and so it is therefore worrying that our research found that so many start to be concerned about poor investment performance after just a year.”