Insight: How Your Property Strategy Can Help Your Beneficiaries In The Longer-Term

Written by Jonathan Rhodes, partner and national head of valuation at Cluttons

The time you serve on a charity’s board of trustees or senior management team is limited relative to how long the charity has already been in existence and is likely to continue to exist for. So how can you make a difference during your tenure at a charity?

One of the fundamental principles of charity finance is the different funds a charity may hold on trust. A charity can only hold two types of fund: unrestricted and restricted. Unrestricted funds are freely available to spend on any of the charity’s purposes, whereas restricted funds can only be spent on specific purposes, usually specified by a donor or funder.

Understanding whether income and expenditure is coming from unrestricted and restricted funds is essential in understanding how to govern a charity. There should be a knowledge of the core income streams required to fund the costs of charitable activities being undertaken.

Furthermore, a dependency on one or the other, especially a restricted income, could result in reduced choice for trustees in developing new strategies and initiatives. A charity that generates good surpluses from unrestricted funds is well-placed to pursue new initiatives or invest more in existing, or indeed new, programmes for beneficiaries.

However, it’s not just the annual income and expenditure from a fund that is a measure of financial strength. Reserves, from the balance sheet, show the financial strength of your charity. Ultimately, it is up to trustees to work out how much your charity needs to keep in reserves. A good reserves strategy will establish a financial target, possibly a range, for the charity to achieve at a future date.

Trustees are also able to achieve a step-change increase in reserves for the good of the beneficiaries, which could be achieved by an unexpected bequest or sale of a property.

Rationalising a charity’s property portfolio or leveraging off its asset base is nothing new, however, with fundraising having become more difficult some charities may be faced with reducing reserves and or other demands for monies, which require action of some sort or another.

Property can generate an unrestricted source of income. Therefore, rather than selling an asset outright, charities should consider how their assets could increase their income by considering other options.

However, agreeing these strategies is not a one-off exercise. If you engage early, seek the right advice and ask the appropriate questions , this will help align your property strategy to the financial reserves plan. This should further enable the charity to achieve its objectives, but also help to avoid unforeseen circumstances, whilst optimising the opportunity to increase unrestricted income and not undermine the balance sheet for the future.