How to fundraise from trusts and foun­da­tions when you have high reserves

What hap­pens if your organ­i­sa­tion has too much’ mon­ey? While most char­i­ties and social enter­pris­es don’t find them­selves with high reserves very often, this can be tricky to man­age when it hap­pens – espe­cial­ly if you work in trusts and foun­da­tions. In a use­ful how-to arti­cle, Direc­tor of Lime Green Con­sult­ing, Mike Zywina, shares his tips on what to do if your organ­i­sa­tion finds itself in this position.

Written by
Mike Zywina
May 24, 2023

In a cost-of-living crisis, it feels strange to be sharing advice with organisations that have the perceived luxury of having too much money. I know that the reality is very different for most charities and social enterprises in the current landscape. But some organisations are in a much stronger financial position (on paper at least) and this presents its own set of unique challenges. We’ve worked with several organisations with high reserves recently, so I wanted to share a few tips from a fundraiser’s perspective.

Firstly, why might a charity or social enterprise have high reserves?

Frustratingly, many funders still seem to insist that holding anything above three to six months’ running costs in reserve is inappropriate. Some organisations very prudently aim for unrestricted reserves that are a bit above this level. But for the purposes of this blog, by ‘high’ I mean organisations that are sitting on – or are perceived as sitting on – substantially higher reserves, for a variety of reasons.

The first and most obvious reason is that they simply do have very high reserves. Maybe this has accumulated over a prolonged period due to excessive caution or even mismanagement by the Board, or maybe there’s a good reason why it’s prudent for a specific organisation to hold substantially more funds in reserve.

High reserves can also be circumstantial. A charity could have recently enjoyed a large, unexpected fundraising success, or received a significant legacy, and hasn’t decided how to spend the money yet. Perhaps they’ve been saving up for major capital work, the launch of a significant new programme, or something else that can't be actioned yet. In these cases, while the high reserves might be temporary, they can still raise a red flag for a funder, especially if unexplained.

Alternatively, a charity may have high reserves because of the specific way it was set up and operated. Some organisations are established with a large endowment (i.e. gift of money) that can be relied on to keep funding its services for decades. However, eventually the trustees may realise that if they continue this way, they’ll eventually run out of money. So they want to start securing grants from trusts and foundations, but are in a tricky position – essentially not wealthy enough to continue on the previous trajectory, but too wealthy to look like a compelling cause for grant funders.

Finally, some organisations may just appear wealthy because they own property or major assets. Perhaps this has been the case for a very long time, or maybe they’ve recently been gifted property. Often this gives them vital stability and fit-for-purpose premises to run their services more effectively, and they’re extremely reluctant to sell up. While owning the property is completely different to having high unrestricted reserves, in my experience some funders will only glance at a charity’s accounts in a simplistic way and may still perceive them as being wealthy, even if it doesn’t translate into having money available to spend on services.

What can you do if you have high reserves or are in an unusual financial position?

It can be tricky to know what to do when the sums show that your organisation has more in reserves than expected.

1. Write template content to explain your financial position

This will be especially helpful if you’re set up in an unusual way, own high-value premises or are temporarily holding significant funds in reserve, as explored above. Bear in mind that while more proactive funders may query anything unusual with you, others will go ahead and make a decision about funding you simply based on the information that is publicly available.

Think through any particular concerns or misconceptions that a funder might have when looking at your annual accounts, then explain the reasons or rationale why the organisation is in that position. For example, is there a specific reason why a large amount of money has come in but not been spent yet? Would selling property have a damaging impact on your service delivery? Use plain English and once you’ve drafted something, show it to others (including those with no finance or fundraising expertise) to check that it is clear. 

One key learning point for Boards and management teams during the pandemic was how quickly an organisation can become financially vulnerable when a major external event cuts off several income streams. Many organisations now feel that having higher reserves is a strategic necessity to ensure stability for service users and staff. If you’ve made changes on this basis, this is something to explain concisely to funders.

You can then use your template copy in funding applications, either in response to specific questions or in those ‘Anything else that you want to tell us?’ boxes. If there’s something that you want to tell a funder, but you don’t know where/how to include it, don’t hesitate to contact them and ask. You should also consider using any template copy in your annual accounts (see below).

2. Apply a fundraising perspective to your reserves policy and annual account

In my experience, organisations rarely think about grant funders when putting together their annual accounts, even though funders will request, download and examine the accounts more than most other audiences. Despite this, the process of finalising your accounts and writing explanatory notes is typically done by an accountancy firm in collaboration with an organisation’s finance manager and/or treasurer – people who collectively may not have any fundraising experience themselves.

The result of this is that your accounts may well unintentionally raise an avoidable but damaging red flag for prospective funders. For example, I've seen organisations show a significant level of unrestricted reserves on their accounts when in practice that money has been (or is in the process of being) restricted or designated for a specific purpose. Nobody has queried the decisions made about how to allocate reserves and how to present that information in the accounts, because nobody is considering it from a funder's perspective.

I’m absolutely not saying that you should write your accounts solely with funders in mind, or present information in an intentionally misleading way. But involving your fundraiser(s) in the process can be very helpful, particularly if your financial position is a little unusual.

3. Explore making contributions out of reserves to part-fund projects

While taking the time to clearly explain the reality of your financial position helps, sometimes you need to think about changing that reality too.

We’re operating in a crisis funding landscape, with funders scrambling to respond to urgent social needs exacerbated by the cost-of-living crisis, having had no time to recover from overspending during the pandemic. They receive urgent requests for support every day, so they’re unlikely to find it very compelling to fund you over another organisation for work that you could easily afford to do yourself.

One way to turn your high reserves into an advantage is by pledging to match fund any grants received. For example, if you’re fundraising a six-figure sum to refurbish your main building, could you pledge to make a contribution from reserves to cover 50 per cent of the cost, with the remainder funded by grants? This requires careful discussion with your Board, but it might boost your application success rate, and open up funders that will only consider making a grant once part of the funding is already in place.

4. Consider the timing of your applications carefully

One challenge for fundraisers is that our organisation’s financial information will always be out-of-date, due to the time it takes to finalise and file a set of accounts. If you’ve taken some of the steps above to reduce your reserves or structure/explain them differently, it may be some time before this is reflected in the information published on the Charity Commission website.

Where funders accept applications on a rolling basis, it might be prudent to hold off submitting a key application if your new accounts will be published soon. You might also be able to work with finance staff to finalise those accounts more quickly, where the new information is likely to have a major impact on how funders will perceive you.

Editor’s note: This blog first appeared on the Lime Green Consulting website, in February 2023. We are grateful to Mike and his team for allowing us to reproduce these tips on SOFII. 

IMAGES: All images courtesy of Lime Green Consulting.

About the author: Mike Zywina

Mike Zywina has 15 years’ experience in the sector as a fundraiser, consultant, senior manager and trustee. He created Lime Green Consulting in 2014.

Mike spends his time facilitating strategic planning workshops and delivering training for charities and social enterprises, and writing major funding bids, with a particular track record in securing Lottery funding.

As a fundraising strategy specialist, he helps organisations to develop a more sustainable funding base and prioritise the best income opportunities, by asking the right questions to bring structure to their planning and draw out the best aspects of their work.

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