When things get tough at a charity, the obvious place to look for a solution is by cutting the cost base. Sometimes Trustees will invest in fundraising and sometimes Trustees do both.
It’s much easier to cut the Sellotape budget because it is so visible, and it is naturally difficult to create more future income by incurring a fundraising cost first, because the future income is inherently uncertain. Sometimes cutting costs can be more damaging than taking the risk of creating more income – both need to be looked at alongside each other on an equal footing.
When it comes to charities that rely on investments for a large part of their spending, the uncertainty about the future is exacerbated by the remote and technical decisions that need to be made. Trustees might tell their fund manager ‘we need to spend more’ to which the manager is likely to respond by saying that it will reduce the likelihood of preserving the charity’s capital. That is an obvious truth – you cannot at the same time spend more money while increasing your chances of growing it if all other things are equal.
What are Trustees to do if their professional advisers are discouraging about spending more? One thing to remember is that the object of the charity is not to exist in perpetuity, but to use its money to advance its objects somehow. After all, the reserves are held for times of stress as well as the long-term.
Trustees can also question whether all other things are equal – for example could they have a higher returning portfolio with tolerably more risk? This is exactly why Trustees are allowed to take risks with the charity’s future, so long as they have thought about it; that’s their job.
What Trustees sometimes lack is the confidence (and occasionally the willingness) to push back against advice not to spend, and take a risk to do something more useful with their investments.
We believe that Trustees should be in the driving seat