Trends & data analysis

Surplus and survival

29 September 2017

Charity Financials data show that a worryingly low percentage of charities post surplus funds, what does this mean for long term resilience? 

As Autumn sets in it’s natural to think of Aesop’s fable of the ants and grasshopper. The ants worked hard all summer and built a healthy surplus of food for the winter. The grasshopper relaxed all summer and, in the characteristically brutal way of these things, perished in the winter. No doubt charities would like to think of themselves as the ants, but what is the real picture?

The total size of all surpluses, on the Charity Financials database is £3,797,313,000. A large figure, but how does it break down amongst charities?

The top five largest surpluses are;

Name of charity                                                                                Surplus/£m

Power to Change Trust                                                                        140.022                

Royal Brompton & Harefield Hospital Charity                                         104.338                

Peabody Trust                                                                                    89.872  

Charities Aid Foundation                                                                      88.480  

The Rhodes Trust                                                                                55.730  

Unsurprisingly, due to the nature of their work, trusts figure prominently among the high surpluses. If we remove them, and make a top five of charities who deliver services of any kind, then the top five largest surpluses are;

Name of charity                                                                                Surplus/£m

Charities Aid Foundation                                                                      88.480  

The Institute of Cancer Research                                                         51.894  

Tate                                                                                                  46.870

Great Ormond Street Hospital Children's Charity                                    42.394

Save the Children International                                                            27.715

It is also worth noting that Charities Aid Foundation operates a charity bank, which may account for their particularly large surplus. Away from the big numbers at the top of the table, what are the distributions of surpluses? Our sample was 2,625 charities and of these 69 had a surplus of over £10m, 147 had a surplus of between £5m and £10m, and 449 charities had a surplus of between £1m and £5m.

At the lower end of the scale, 362 charities had a surplus of between £1m and £500,000, 958 charities had surpluses of between £500,000 and £100,000 and 711 charities had surpluses of £100,000 or less.

Even the smallest surplus provides charities with a measure of security and stability, but not all are lucky enough to have one. In fact, of the records on the Charity Financials database – only 1.5% have a surplus of over £10.

Charities are not required by regulation to post surpluses every year, though there is obviously a business case for doing so. They are required to by the Charity Commission to have a reserves policy. There is no set level of reserves required but charities are expected to assess risks and benefits of operating without reserves to fall back on. Not posting a surplus does not mean that a charity has no reserves, however – consistently not posting a surplus will make developing cash reserves impossible.  With 98.5% of charities surveyed not posting a surplus in the most recent data (which ranges from 2017-2016) it seems unlikely that the data shows a onetime anomaly and more likely that charities are consistently not posting surpluses and hence, will struggle to generate reserves.

Some charities find that rather than a surplus or ‘breaking even’ for the year they have a negative asset balance when it comes time to do their financial reporting. Some 327 charities in the Charity Financials database are in this position with net assets of - £768.2m.

A common explanation for a negative asset balance is large investments, for example in property, and this chimes with the organisations posting the top five largest negative balances, which are;

Name of charity                                                                                Assets/£m

Aston Student Village                                                                          -137.493              

Sanctuary Student Homes Limited                                                       -46.001               

Culture and Sport Glasgow                                                                 -44.370               

Genome Research Limited                                                                  -42.457               

Eastland’s Homes Partnership Limited                                                  -33.476

The distribution of the negative assets across the whole group found a small number with large negative balances and larger numbers with smaller one. Fifteen charities had a negative asset balances of over £10m, 12 charities £5m-10m, 61 charities £1m-5m, 44 charities £500,000 – £1m, 105 charities £100,000 – £500,000 and 90 charities had a negative asset balances of under £100,000.

If we look at the two graphs, we can see that the breakdown of the negative asset balances between the charities is similar to the breakdown of surpluses, when we consider the proportion of charities in each class, perhaps hinting at the stark divisions by size of charity within the sector.

Overall, there are very few charities posting negative asset balances and they may have good reasons to be doing so. What is more worrying is that only 1.5% of charities are posting surpluses. If charities cannot put surplus funds into reserves it will harm their resilience. They may find that when winter comes, they perish like the grasshopper rather than survive like the ants.

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Thomas Collinge

Thomas Collinge is a political and social affairs journalist, and public affairs assistant, at Slack Communications.

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