Consider the chart below. It shows two charities, A and B. The dark blue area shows the value of the assets of the charity on its balance sheet. Many trustees would think that Charity A, with the higher asset values, was the one that had been more successful. It has, after all, more money than Charity B.

But wait - if that was really a measure of success, Trustees would spend as little as possible simply to make their charities bigger and bigger. A better interpretation is to also include what has been spent alongside what is left. On this basis it’s Charity B that has been more successful because it has spent more on its beneficiaries, done more good, and in doing so, has made more money than Charity A.

The difference between Charity A and Charity B lies in the decisions Trustees make between spending and saving. Too often the default position is to spend too little because anything else might be too much, but this is where Trustees can take risk by spending more now, and (if necessary) cutting back later. That is what makes a charity able to earn much more than a pension fund; it is their golden advantage.

The primary mission for charity Trustees is to maximise charitable expenditure, not just to maximise charitable income. After all, it’s what a charity spends that makes it charitable, not what it keeps for itself

Categories: Expenditure
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