Your Charity Has A Purpose But Does Its Assets?

Charity trustees and managers will be very familiar with its charitable purposes and objectives, whether that be the promotion of animal welfare, the relief of suffering from illness, the advancement of the arts, or the relief of poverty to name just a few.

Everything a charity does should be designed to further its objectives in some way and many charity boards will spend a lot of time planning and implementing a strategy that seeks to deliver as much as it can within the assets that it has.

What are charity assets? Can charitable assets cause any issues as they grow and evolve over time?

Often a charity will have a mix of assets, starting with those used to first establish the charity. Over time, funds may grow, new sources of income are established, donations and legacies are received and the charity’s affairs become increasingly complex. It can be extremely helpful to step back from time to time to consider what assets your charity holds and to ask the simple questions:

This can be quite simple for some charities. A housing charity, such as Almshouses, may well hold 30 properties for their beneficiaries to live in. A grant-making charity may hold a large investment portfolio to produce an income to support its grant-making.

It can, however, be more complex. Many charities will have a mixture of assets available to them. These can be used to generate an income to help meet the charity’s purposes or to provide for capital growth for future expansion.

Sometimes, however, there is no clear underlying strategy behind why the assets are held and it is important to keep the appropriateness of the charity’s assets under review and this is where problems can occur.

The Charity Commission accepts that all charities are likely to want to have some form of reserves, or a “rainy day fund”, and the pandemic has perhaps reinforced this. The amount that is needed will vary from charity to charity. A charity that generates its income from an investment portfolio will have very different needs to one that generates its income from a network of charity shops as its overheads, etc., are markedly different.

One particular problem that can occur is when a charity unexpectedly comes into a large sum of money. Let’s say our Almshouse charity receives a gift of £1,000,000 on the death of a former beneficiary. The question for the trustees becomes what to do with these funds?

We often see trustees tempted to invest the funds. When we ask them why they often pause to think further. There are certainly other options, modernising and upgrading their existing properties or purchasing further properties to allow them to take on more beneficiaries to name two.

Important things to consider

It is always worth thinking about why you hold the assets you do and at what point you may wish to change this. You may wish to implement a reserves policy to set out what level of funding you wish to have in reserve within the charity for a “rainy day” and how this money will be held (investment, cash, property, etc.).

You may also wish to set out in your annual trustee’s report why you hold your current assets and what your plans would be if these increase in value to a certain level. Let’s say our Almshouse charity wants to have a reserve of £15,000 per property for maintenance works (£450,000 in total) and that one fund is above this, they will consider the purchase of a further property to use as an Almshouse.

Maybe a dementia care charity running a day centre will seek to open up a further site or expand its current one once it has assets above a set level?

Being able to demonstrate that each of your assets has a purpose is key to showing that you are delivering against your charitable objectives as best you can.  If ever you are unsure on this then you may wish to take professional advice as to the way forward.