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Charities told to avoid cash crisis

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The national charity regulator has released new guidance encouraging charities to maintain cash reserves to ensure financial stability and sustainability.

Charity reserves: financial stability and sustainability, released by the Australian Charities and Not for Profits Commission (ACNC), provides charities with guidance on maintaining and managing reserves.

ACNC Commissioner Susan Pascoe AM said the myth that charities should not make a profit or have money in reserve was damaging for the sector and she hopes the release of this guidance will help correct this misinformation.

“Charities are often trying to get by on very little and sometimes are worried that if they build up healthy reserves, they’ll struggle to secure funding. We need to explain to the public that charities need to operate on a sustainable footing to be able to continue their work from one year to the next. Making a profit allows a charity to build reserves and become sustainable,” Pascoe said.

“Charities should have reserves set aside to cover unexpected events or costs – a fund set aside for a rainy day. Even small charities would benefit from a small reserve.

“A charity’s board should make sure that the charity is resilient enough to deal with unexpected costs and adverse situations.”

Commissioner Pascoe also highlighted the need for funders to understand that charities, like other enterprises, need reserves.

“Reserves bring financial stability and sustainability. This allows charities to focus on their core services and provide better outcomes for the community over a longer period,” she said.

“We encourage funders and donors to consider the long-term benefits of charities maintaining reserves, and to not disadvantage them if they have taken prudent steps to build reserves. Too often charities may feel that they have to go into ‘starvation mode’ to appear deserving of support; this serves nobody well, least of all the people they are working to support.

“Charities with limited reserves leave themselves vulnerable to financial struggles which can affect services in the long run. Funders and donors should want to invest in and support sustainable programs that have a medium- or long-term future.”

John Brogden, Managing Director & CEO of the Australian Institute of Company Directors (AICD) welcomed the publication of the guidance.

“It’s essential that charities have the reserves they need to meet future challenges and to re-invest in their organisations. If they don’t have those reserves, the long-term sustainability of a charity is at risk,” he said.

Judith Fox, National Director of Policy & Advocacy at Governance Institute of Australia, praised the guidance.

“It is important that there is a focus on financial management and sustainability, as well as the management of risk, in charity governance. The ACNC’s guide to reserves reminds charity boards of this,” Fox said.

“Good charity governance must include serious considerations of finances, and it is crucial that reserves are included in these considerations. Charity boards should not be afraid of embracing better financial practices to ensure better services and outcomes.

“The ACNC’s guide to charity reserves gives charity boards a good overview of the importance of maintaining reserves. All charity boards that are serious about developing a long-term plan and sustainability should read the guide.”

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3 Comments

  1. Chris Arnold December 6, 2016

    This is an important contribution, worthy of note by not for profits, and importantly, funders of charity work , whether corporate or government. It needs to apply not only to short -term operating surpluses, but also to ensuring re-investment in capital infrastructure. Thank you to the ACNC .

    Reply
  2. Chris Arnold December 6, 2016

    This is an important contribution, worthy of note by not for profits, and importantly, funders of charity work , whether corporate or government. It needs to apply not only to short -term operating surpluses, but also to ensuring re-investment in capital infrastructure. Thank you to the ACNC .

    Reply
  3. Warren Price July 6, 2017

    Each year we support 6 groups to raise their operational budget and the we increase the target amount. In an ideal world charities must employ corporate principles to survive. One of those principles is having cash reserves. At the bottom end, 6 months of reserves will help navigate any immediate cash flow crisis. At the top end 18 months operational reserves ensures long term viability. Yours is a great story and one that must be embraced by community staff

    Reply

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