Meet our Expert
David established Action Planning in 1990 after a 16 year fundraising career, and is recognised as one of the not-for-profit sector’s leading authorities on strategy, management and fundraising. David is a member of the Institute of Fundraising, former Chairman of EU Consult, a trustee of Andrews Charitable Trust and the Christian Initiative Trust, and Chair of Advantage Africa.
“Funding core costs is always a problem. What is the best way to tackle this?”
This is a problem almost every charity faces; there is no simple answer. Having said that, let’s look at a Seven Point Plan to minimise the problem:
1. Make sure your core costs are as low as possible. Every organisation accumulates a little ‘fat’ over time, as activities or posts get added to deal with a short term need, and become part of the long-term infrastructure. Challenge yourself to see how you might reduce core costs by 20% – in-sourcing instead of outsourcing or outsourcing instead of in-sourcing (there isn’t a ‘right’ answer!); changing suppliers for products and services; reducing posts to part time and/or job shares (the roles may still be needed, but not necessarily full time?); and so on.
2. Make sure what you are counting as ‘core costs’ really are just that. Could any of these genuinely be re-described as service delivery and/or projects, under the accounting SORP (Statement of Recommended Practice). Many organisations just work on the basis of their budget as prepared for management accounts, without taking it apart and re-describing it in fundable ‘packages’. For example, if the Chief Executive is going to spend 25% of his or her time in the coming year developing a new initiative, maybe a trust would ‘pump prime’ that cost. Could part of the work of information officers, researchers etc. be bundled together to create an education project? This isn’t being devious – it is almost the opposite! It is describing your expenditure in terms of outputs and benefits, rather than in terms of standard and convenient budget lines.
3. Make sure you aim for ‘full cost recovery’ wherever possible. Some funders still baulk at this, but many are sufficiently enlightened to realise that projects don’t just happen – they need infrastructure, management, administration etc. to make sure they happen effectively. Wherever possible don’t add in the traditional ‘10% for overheads’ (which may not be enough) or the optimistic ‘25% for management costs’ (which may be too much, or at least too much for the funder to stomach!) Rather, cost out as accurately as possible the proportion of different aspects of your core costs that apply to this project – CEO and other senior managers’ time, premises, etc.
4. Having done these exercises, be deliberate about fundraising for these costs. Make sure all project proposals include a fair allocation of core costs where these are allowed by the funder. If in doubt, put them in! Put together new proposals for those elements of core costs that you have redefined as projects and that will appeal to specific audiences – especially trusts, and major donors.
5. If you are lucky you may have other sources of unrestricted funding, such as investment income, or legacies. The danger is that you become over-dependent on these sources (especially legacies, where the income levels can be unpredictable). Some charities prefer to use legacies as genuine ‘windfall’ income, to pay for new initiatives they would never previously have considered, although in these straightened times this is becoming less common.
6. You will now be left with a ‘rump’ of core costs that will only be paid for by two types of donor – those that absolutely love what you do, and those that couldn’t care less what you do! Those that love what you do will either be oblivious to how their money is spent – they trust you to use it wisely and if that means paying the Receptionist’s salary that’s fine by them. Or they will be more than happy to be told exactly what their money will be spent on – even if it is the Fundraiser’s salary! They will understand that using their donation as ‘leverage’ in this way will make their gift even more valuable. Don’t be shy of putting these kinds of propositions to donors – especially major donors. Don’t fall into the trap of asking for project money (restricted funds) from people who might be more than happy to give you unrestricted funds that you can use for any proper purpose – including core costs.
7. So what about the donors who couldn’t care less what you do? These are the people (admittedly not all of them, but certainly many of them) who simply want to buy that coat from your charity shop, who want the fun of participating in your sponsored parachute jump, or who want to entertain their clients and friends at your Gala Dinner and Dance.
These forms of fundraising are often more expensive than others, but their great benefit is that nobody minds if the profit is spent on core costs rather than projects. So do make sure you have enough of these in your fundraising programme specifically for core costs.