International development organisations must urgently build up their reserves if they are to continue to support the world’s most marginalised people, a new report warns.
Building Financial Reserves for Resilient Organisations, published today by the NGO umbrella body Bond and the accountancy firm haysmacintyre, says international development organisations must learn from the ongoing financial crisis and work to increase the level of reserves they hold so they can be better prepared for future downturns.
Research for the report among 156 international development organisations showed that the mean level of unrestricted reserves held was 11 weeks of total spend, with a median of eight weeks.
“Having reserves below eight weeks may make it difficult for an organisation to survive a financial shock,” the report says.
“Given the low level of reserves in the sector and the uncertainty of 2020 and beyond, organisations have to consider how they are going to transition to new business models.”
It says UK NGOs face a challenging financial future because of issues including the economic downturn and expected cuts to the international aid budget.
The report says that raising funds through individual giving is the most effective way for organisations to build up their reserves.
Graham MacKay, chief operating officer at Bond, said: “Given the worryingly low level of reserves in the sector, the importance of the nature of our work and the uncertainty of 2020 and beyond, NGOs must start planning for any future shocks.
“Charities should aim to have reserves well above eight weeks so, if faced with a financial shock, they can continue to honour any programming and pay staff salaries and running costs. Building reserves needs to be a financial priority for many organisations.
“Far from reserves being perceived as a bad thing by donors, reserves reveal the financial health of an organisation.”