Our charity view at two: five observations of charity finance

As Yoke passes its second anniversary, we continue to be amazed by the vitality and energy of charities and their Trustees. We meet so many passionate and enthusiastic people who work tirelessly on a broad range of charitable missions.

Yoke is being asked to help on a growing range of financial issues from simple to complex and from broad to narrow, but there are a number of themes that repeat themselves:

Governance

Everyone needs to understand the charity’s financial state and know why they allocate money as they do. Every Trustee, regardless of their background should know why they invest money rather than spend it, or how they can earn what they hope to spend. They must be engaged in financial decisions and not rely on delegated committees to manage these essential problems for them.

Cash

This should be a simple asset, but many charities worry more about this than most other aspect of their reserves. Are we holding too much or too little? Interest rates are too low? Is my bank safe? I can get a better return on cash elsewhere, but why is this? We remind charities there are three aspects to cash (in this order of priority): security – liquidity – return, you can have two but not all three.

Risk 

Too many charities think of cash reserves as a number of month’s expenditure. They then have a medium-term buffer and if possible, a long-term reserve. They then try to blend everything to have a single risk appetite for their each of these three financial reserves. This is unnecessarily complex and confusing. 

Investment management 

Trustees need to either manage their investment decisions or delegate them. Either they have the expertise and experience to manage the problem themselves or they pass this onto a regulated firm to manage on with a clear mandate. Most charity investment managers have similar performance and costs, so be clear what service you require, but don’t try to double guess them

Ethical investment 

There is no framework for this and many charities are confused by the terminology. Keep it simple by either excluding areas that might damage the charity’s reputation (generally things that matter to other people) and/or invest in assets that will have a positive social impact that is in line with the charity’s mission (things that matter to the charity).
 
We are always delighted to assist charities of all sizes with their financial governance and investments.