Busting Charity Money Myths
When people donate to charities, they want to know their money will be used effectively and will have a positive impact on the cause they want to support. We are busting some of the most common 'charity money myths' that contribute to the idea that "each dollar you give should be used well" rather than on important administrative costs.
1. A charity can’t spend money on administration
It is a myth that a charity cannot spend money on administration. Like any organisation, charities require administrative costs to run their operations effectively. These costs include renting an office, supplying electricity, purchasing and maintaining an IT system, evaluating programs, among other things.
High administration costs alone do not indicate that a charity is poorly run. In fact a charity that invests in administration to train staff and evaluate its programs may be more efficient and effective than a charity that neglects these aspects.
Donors should evaluate charities based on their overall impact and effectiveness rather than solely focusing on the percentage of funds allocated to administration.
2. A charity can’t make a profit
This is indeed a Myth, a charity can make a surplus. While charities are not typically focused on making profits for distribution among shareholders, they can generate more revenue than they spend in a given fiscal year. In fact, generating a surplus is essential for a charity’s financial stability and long-term viability, providing it is used to further its charitable purposes.
The surplus generated by a charity can be reinvested in several ways:
Fund new projects or service
Making loan repayments
Donating to a charity with a similar mission
Keeping it in reserve
It is important to note that Charities are expected to be transparent about their financial management and demonstrate how the surplus is utilised to support their mission.
3. A charity can’t keep money in reserve
It is a myth that a charity cannot keep money in reserve. Having reserves allows a charity to protect itself in case of unforeseen circumstances, such as a sudden drop in funding, a decrease in donations, or a crisis that requires a rapid response.
Reserves provide a safety net and give the organisation the flexibility to continue its operations and fulfill its mission even during challenging times.
There are no specific regulations dictating the exact amount of money or the duration for which a charity can keep money in reserve. The decision varies based on factors such as the charity’s size, nature of operations, and potential risks it may face.
4. A charity can’t invest its funds
Charities absolutely have the potential to invest their funds. In fact, investments can diversify a charities income steam and ultimately further its charitable purposes.
Not all investments opportunities are suitable. Certain stock market investments or crypto-currency may be too risky and therefore not an appropriate investment.
Investment choices must always adhere to the ACNC Governance Standards, ensuring ethics and responsibility.
5. A charity can’t undertake commercial activities
A charity CAN undertake commercial activities, providing it is advancing its charitable purposes.
There are three scenarios where this is the case:
Undertake commercial activity to generate profits to fund charitable endeavors
Engaging in a commercial activity that directly aligns with your charitable purpose
Commercial activity is merely incidental to the purpose of the charity
For more information on how we can help you, please get in touch on 1300 391 793 or email us info@giuntabell.com.au
Source: Charity Money Myths: The Facts About Operating as a Not-For-Profit by the ACNC