A new report by Bond, with haysmactinyre, is calling for NGOs to learn from the current financial crisis and work to grow their reserves so they can weather future financial shocks and prevent aid and development programme closures and job losses.
The report warns that UK NGOs will continue to face a challenging financial future in the years ahead due to the UK’s economic downturn, cuts to the aid budget, and now a potential reduction in official development assistance from 0.7% of gross national income to 0.5% which looks set to hit development and aid programming on the ground hardest.
The report highlights that even before the Covid-19 crisis, most UK charities did not have sufficient reserves. According to the report, the average level of large charity reserves covered only two months of running costs. This is despite a clear majority (85%) of organisations stating their reserves are a ‘major part of their risk management and financial resilience’.
As part of the study, NGOs were asked to share their experience of building reserves.
64% of survey respondents cited ‘lack of opportunity’ as the most common issue preventing organisations from building up their reserves. 45% of respondents were concerned about what donor attitudes would be if the organisation built up their reserves.
Graham MacKay, Bond’s chief operating officer, said:
“Given the worryingly low level of reserves in the sector, the importance of the nature of our work and the uncertainty of 2020 and beyond, NGOs must start planning for any future shocks. Charities should aim to have reserves well above eight weeks so if faced with a financial shock, they can continue to honour any programming and pay staff salaries and running costs – building reserves needs to be a financial priority for many organisations.
Building reserves is a delicate balancing act between spending money directly on programmes as efficiently as possible and investing in an organisation’s growth, without compromising its resilience. This is something donors, trustees and organisational staff all need to work on together – especially as building reserves now will be more difficult than ever.
Far from reserves being perceived a bad thing by donors, reserves reveal the financial health of an organisation.”
The report found that individual giving, such as voluntary donations from the general public, proved to be the most effective way to build a surplus regardless of an organisation’s size, with 50% of respondents saying it was the best way to build reserves. 80% of smaller organisations said individual giving is one of their top surplus earners, compared to just under 40% of larger organisations.
In contrast, nearly 90% of larger organisations felt that restricted grants were a source of surplus, in comparison to 33% of small NGOs, suggesting that larger organisations have the scale and leverage to agree more favourable grant conditions.
Notes to editor
- Bond report: Building financial reserves for resilient organisations: Approaches and recommendations for NGOs can be found here.
- Last week, a Bond survey of NGOs warned that small and medium NGOs are facing increase in demand for help, despite lack of FCDO support and job losses.
- The data used in the report came from a detailed survey of 28 international development organisations ranging in turnover from less than £1m to greater than £100m.
- haysmacintyre is an award-winning firm of chartered accountants and tax advisors, with 38 partners and over 300 staff, providing advice to entrepreneurs, fast-growing and owner-managed businesses, charities and not for profit organisations across the UK and internationally.
- Bond is the UK network for organisations working in international development. Bond unites and supports a diverse network of over 400 civil society organisations from across the UK, and allies to help eradicate global poverty, inequality and injustice.
- For further information please contact Maryam Mohsin on 07555 336029 or [email protected]