Page 4: Balancing the books - revenues and expenditures
Any well-run organisation must keep a detailed account of the financial side of its operations. Not only must the organisation give the best value for money for every pound that it spends, it must also make sure that it can always easily cover its expenditures by its revenues.
A well-run charity therefore operates with the utmost respect for sound financial housekeeping. It is only by operating in this way that the charity is able to give the best value for money. For example, a charity which spreads its expenditures at random over a range of good causes on a 'by request' basis might find that, by failing to prioritise its aims and expenditures, it has no money left for the most important projects which might be of a long-term nature. Careful control of an organisation’s finances is vital.
How War Child raises its revenues
War Child tends to concentrate on a fund-raising strategy of fewer, high profile, highly profitable events, as opposed to numerous, small and less profitable events. Of course, donations of any size are always greatly appreciated but the cost of employing extra staff to co-ordinate numerous small events would outweigh the money raised from these events (i.e. in economic terms, the marginal cost would be greater than the marginal revenue).
High profile events fit well with War Child’s strong support base in the media, music and entertainment businesses and add to War Child’s reputation for working hard to build events which are fun and unusual, while at the same time raising money for a great cause. Typical events include celebrity auctions, 'Pavarotti and Friends' concerts, the Help CD (featuring top rock stars to raise funds for war children in the former Yugoslavia) and Club Child, a recent innovation which involves a monthly club night in London.
A War Child trading company – all charities are bound by law from making investments involving anything other than very small risks - even if the investment promises higher yields than 'safer' deals. The reasoning behind the law is that donations are not given to War Child, or any other charity, for speculative purposes; rather donors expect their money to be used directly to further the aims and objectives of the charity. Consequently, War Child is in the process of setting up a War Child trading company. This is a separate but associated commercial organisation, whose sole purpose will be to sell merchandise, run fund-raising events and generally make money for War Child Trust (the charitable arm of War Child).
It is planned that the War Child trading company will be established using start-up funds loaned or invested by corporate partners and donations from commercial companies, thus limiting the charity’s financial liability. Donors/sponsors will be rewarded by small dividends on their investments or interest on their loans and the knowledge that the bulk of the profits from the War Child trading company is going to War Child Trust.
How War Child allocates its expenditures
Making best use of resources means spending money in the best possible way. In order to do this, it is necessary to establish a clear set of criteria which are determined by the aims of the organisation.
Once projects are chosen, specific budgets are allocated. War Child’s project team regularly meets to decide on the best way of allocating funds. The team must consider both on-going projects and likely future commitments.
By working through a network of specialist NGOs, War Child can react swiftly and effectively to a wide range of problems, whilst keeping the organisation’s administrative infrastructure to a minimum. War Child is proud that its current administrative overhead is less than 5%. This is an important measure of efficiency.
Expenditures include material aid (food, medical supplies etc.), transport, staff salaries and travel costs, administration and office expenses plus public awareness raising campaigns. In addition to the project budget, War Child always keeps financial reserves in the bank to cover a minimum of three months total running costs, as well as an additional fund of £50,000 in case of unforeseen emergency. The southern Sudan food airlift, for example, required £20,000 at very short notice to provide food to the areas worst hit by famine.