In one year alone, the UK’s top 100 charity fundraisers earned £3 billion in restricted funds – that’s according to new research from Xledger highlighting just how much of a challenge this type of income poses for finance teams.
Annual reports show that, for some charities, over 90 per cent of their earned income last year came in the form of restricted funding. Out of the 100 fundraisers on the list, more than a quarter recorded restricted income of 50 per cent or more.
Jo Sutton is Head of Operations at Xledger, a leading supplier of cloud finance ERP systems helping charities modernise the way that they manage their finances to make effective business decisions.
She said: “Although no charity would ever turn down money, unrestricted funds are highly prized by organisations, simply because these can be directed to multiple areas, depending on where they are most needed at the time.
“Not only this, but restricted funds come with an obligation to prove that the money has been spent correctly, and if your income is largely restricted, that’s a huge burden of cost. You’ll need a larger team on your accounts, creating more work in the back office.”
To demonstrate the scale of the challenge caused by restricted funding, Xledger has examined annual reports for the 100 top fundraisers in the UK, noting the split between unrestricted and restricted earnings.
For one charity, money in restricted funds totalled £313.5 million in one year, while it had £93 million in unrestricted income. Out of the 100 charities on the list, 15 were managing over £50 million in restricted funding.
In contrast, many of the biggest names in the UK charity sector earn less than 5 per cent of their money through restricted funds, proving that it’s possible to be a top fundraiser without relying on this as a large source of income.
Jo, who has over 20 years of experience in the IT industry, said: “The reasons for a high rate of restricted funds can be incredibly complex, and although this varies on a case by case basis, we know that most people want their donations spent on the front-line.
“Without the right finance software, tracking large amounts of restricted income, this can result in hours of extra work, with some finance teams resorting to the cumbersome task of manually analysing transactions offline in a spreadsheet.
“All of this has the potential to put a further strain on finance staff and spending in the back office – unless you have an effective IT system able to shoulder this burden of cost by making the process as transparent and effective as possible.”
To view the full set of data, click here:
Restricted funding report – Xledger
All figures quoted are restricted funds generated within the last published financial year (as shown on the most recent statements of financial position available).
Data for the top 100 charity fundraisers (the UK’s largest charity fundraising bodies) was obtained from M&G Investments: Charity Financials Top 100 Fundraiser Spotlight.