There is a ‘magic money tree’ and you could well be sitting under it

Small charities – run without the luxury of fully-staffed finance departments – are often held back because they lack the resource to make informed money-related decisions. That’s in no way a criticism of the huge efforts made by volunteer treasurers but simply a reflection of how much time and effort it takes to research choices that are non-essential.

To investigate this unavoidable ‘better the devil you know’ attitude and weigh-up the alternatives, Back of the Sofa conducted a survey among 125 small charities. Respondents included churches, village halls, Scout groups and community centres to name a few. The results show that 42% are yet to register for Gift Aid. Perhaps it’s not relevant to their funding you may ask? But 83% also said they receive cash donations so that argument doesn’t stack-up. And just half of those receiving regular donations under £20 use the Gift Aid Small Donations Scheme. Registering your charity with HMRC might be a daunting prospect and you’re going to need a lot of information before you start (bank details, financial accounts, dates of birth, National Insurance numbers etc) but don’t let that put you off.

A Great Deal of Interest

Similarly we saw that 42% of charities receive no more than 0.1% interest on their reserves. Yes that might be the going rate for a business current account but there are charity-only easy-access accounts on the market that will give back more than seven times that amount and only take 10 minute to apply online for, plus digging out a couple of forms of ID.

With almost all respondents to the survey being responsible for paying the bills for a building, let’s look at how savvy they are when it comes to the business of utilities. Energy was the most expensive overhead with annul bills averaging £2,800 and one in eight paying £5k plus. The range in unit rates for electricity being charged is 11p to 25p per kilowatt. In other words, some people are paying almost two-and-a-half times as much as others for the same stuff. Those on an ‘average’ unit rate of 14p are still forking out a fifth more than those who have managed to get themselves on the cheapest electricity in the range. Better news is that 87% are on the lowest rate of VAT available when it comes to paying for energy. To demonstrate how easy this is to do, some of the survey respondents mistakenly on the higher rate have already managed to get a VAT refund credited to their energy accounts.

Now that’s a Relief

Likewise, eight out of ten charities have successfully applied for 80% mandatory Business Rates Relief but only around half have increased this to 100% relief by applying for the Discretionary Rate Relief available from each Council. NB To to this you’ll be asked for 2 years of accounts and a copy of your written constitution for this.

After energy, insurance is the overhead that costs small charities the most (around £2k a year on average) but only a quarter have switched provider in the past 2 years. To illustrate how dangerous this inertia is, here’s a statement from an insurance industry whistle-blower, published recently in the Sunday Times: “Big brands rely on inertia. The actuarial data shows that the longer someone is with you, the less price-sensitive they become. So longer standing, older customers can be charged far more and there is little risk of them switching. Basically, the view is that if people are too stupid to shop around, they get what they deserve.”

Someone to do it for you

Services do exist that renew a charity’s overheads on to the most competitive rates once a year – and these can be set up so that, apart from providing a few preferences and giving your consent, you don’t have to get involved. If this appeals to a charity’s Trustees, it dramatically reduces the time and effort required to review options and reach a decision. For example, Back of the Sofa works with Make It Cheaper who guarantees your premium won’t increase by more than 5% each year and makes a £50 donation to new charity customers using its insurance service. Call 0800 158 5299 for more details.

Nick Heath is founder of Back of the Sofa, a free resource to help charities find cash they didn’t know about. (Twitter and Facebook @BOTSHQ)