With a significant blow to fundraising revenue during the COVID crisis and a simultaneous shift in the way government funding is being provided, charities and not-for-profit organisations have found themselves at a financial crossroads. Do they stay on the path that has served them well over the years, or do they look to head down a different road?
It is a challenging time, but it’s also an opportunity to plan a new way forward. Here are five things to consider as you strengthen your cash flow position and prepare for the future.
- Maintain liquidity. Where possible, building up and maintaining a cash reserve is critical to meeting operational and funding needs. While every organisation has different needs, having enough cash to meet at least 3-12 months of expenses provides a buffer for your organisation to withstand significant drops in short term income.
- Make your cash work harder. Holding cash is important for organisations to provide liquidity and stability, and to fund operational expenses. However, with the current outlook pointing to incredibly low cash and term deposit rates, it is worth being savvy where you can. Think about putting cash into term deposits, negotiating better rates and switching banks. To manage time constraints, consider engaging an adviser who can access wholesale platforms and negotiate and implement better rates on your behalf.
- Create passive income streams. If your organisation has cash reserves, think about how you may be able to generate additional income. Can you move some of your cash holding into Fixed Interest products to increase the income? Can you move some cash into growth assets such as shares to generate a higher dividend income and boost long term returns? Investing in assets such as shares and property is often overlooked as a way to boost passive income.
- Be long term focused. While holding cash appears to be the safest and most secure option for your organisation, it presents many risks over time. In today’s world, term deposit rates are so low, they can’t even keep up with the rise in in inflation. This means you may lose the purchasing power of your capital over the long term. Plan for the next 5, 10 or 20 years. How can you become more resilient by building up your passive income and the potential capital base of your organsiation? Growth assets, including property and shares, provide a critical component to this plan.
- Engage in long term partnerships. While many charities have successfully pivoted in the wake of the COVID crisis, the true and tested ways remain. Where your organisation does rely on private donations or grants, stay focused on building and maintaining long term relationships. During the COVID crisis, we are seeing most foundations staying on course with funding arrangements and even boosting funding to charities with which they have a long term partnership.
At Elston we have worked with a number of charities and NFPs and helped them to plan for a resilient future. If you would like to learn how you can take steps to strengthen your organisation, please don’t hesitate to get in touch with our Not-For-Profit & Philanthropy Specialist Amanda Sartor on 1300ELSTON or email firstname.lastname@example.org.