Taking care of the engine room

‘Sustainability’ is simply jargon for ‘staying alive’ (with an emphasis perhaps on the quality of life enjoyed). Staying alive means having a vision and aims that are relevant, inspiring and forward looking – especially in the eyes of your stakeholders. It also means demonstrating that you have the organisational capacity to achieve those aims. The act of ‘staying alive’ is therefore a primary focus for trustees.

I’m approaching a stage in my life where the annual trip to my doctor for a healthcheck is seen as a good investment. Being self-employed with a family, a major illness could be catastrophic as my personal business plan does not include time off for lengthy convalescence. A healthcheck not only looks at my physical condition on the day – it notes actions required to keep me that way: diet, fitness, etc. Potential areas of concern are identified for me to address before they become problematic.

Survival of the fittest

Trustees should ensure their own organisations are similarly ‘health-checked’ annually. They must be satisfied it remains in fine fettle, capable of fulfilling future aims and aspirations. These days, their future funding may depend on it. The case for an annual healthcheck is reflected in more funders needing to be convinced of your ‘organisational capacity’ before they will support your otherwise convincing request for funding. In these days of intensified competition, it is not enough to have a great programme or cause that matches their criteria. You must also be healthy enough to deliver the plan. It’s a responsibility of trustees to ensure that this is the case.

How to check your fitness…

A healthcheck identifies critical factors that will help:
• Find effective practices to enable more investment in artistic endeavours and less on administration
• Establish healthy management–trustee relationships through a shared understanding of management practices, purposes and responsibilities
• Offer stakeholders reassurance about your ability to prepare and deliver plans on budget
• Identify and address risks
• Ensure your aims and activities support a funder’s expectations
• Ensure that you have the capacity to deliver change and development.

A healthcheck comprises many components. Depending on the nature of your organisation and its future aims and/or operations, some may have greater relevance than others. However, the ‘check’ should produce tangible evidence. It should produce information that breathes confidence into your funder’s mind as they consider the merits of your application. It will produce evidence demonstrating that an investment in you will deliver maximum benefits to both parties (after all, no one will ever give you money simply because you need it).

Funders don’t want to fund an organisation that might waste its money. They want to be sure that your affairs are conducted in a robust and effective manner that minimises the occurrence of problems often excused as ‘unforeseen circumstances’. As a trustee of a major grant-giving foundation once said to me, “There are very few unforeseeable circumstances. Most could have been foreseen if people had half a mind to look properly.” Ultimately, it is the board’s role to ensure that someone is looking.

Diligence

So what does a diligence test comprise? In a nutshell, it’s an assessment of standard policies, systems, procedures, checks and responsibilities. At the Complete Works we have developed a checklist of around 75 ‘easy-answer’ diligence questions to which trustees – and management teams – should know the answer (or safely be able to say are not relevant). This provides a clear snapshot of the organisation’s operational health. For example, do trustees know how often their organisation consults with its stakeholders or beneficiaries? And how is this information subsequently reported and used to strengthen that relationship? Or, at a simpler level, are trustees satisfied that appropriate financial controls are in place?

For those yet to experience the enlightening outcomes of a diligence exercise, the benefits are manifest. In addition to the removal of hitherto unforeseen pitfalls, it improves the relationship between trustees and management teams through creating a mutual understanding of who does what and why. It also reduces administration problems, giving you more time to focus upon the real reasons for coming to work.

Fundraising capacity

Funders will seek evidence demonstrating your capacity to raise all the money you need. Obviously they will want to know who else you plan to ask. But if they think you’re planning to make more applications than you have the resources to do, it could cost you your place in the food queue. How do you set targets?
If they are formed in response to the amount of money you need to raise each year, alarm bells should be ringing. Look at your track record. What have you been capable of in the past? How does this compare with future targets? Where do you excel in raising funds? Does this compare with projected sources of future income? If the amount you need next year makes your recent achievements pale by comparison, or is projected to come from different sources, then funders will want to know what you are going to doing differently. Failure to satisfy that question could cost you dearly.

Financial healthcheck

Analysing financial trends over the past three to five years can unveil a multitude of useful data about your organisational health. Using standard accountancy ratios, you can see if you are heading for the sick list – or understand exactly why you are in perfect health. For example, what is the ratio trend between your earned income and contributed income? Organisations increasing the ratio in favour of earned income, are either combining good programming with effective marketing practices, or sacrificing good fundraising opportunities in favour of lower self-generated income returns. Once the ratio trend has been identified, the best course of action becomes obvious.

Another concern for funders is whether the cost of your administration is increasing by more – or less – than increases in self-generated income. If so, then more of their money might go towards administration than to project beneficiaries. It goes without saying which trend reassures funders, and which will drop you further down that food queue. Learning from financial trends is one reason why more funding bodies request two to three years’ accounts. Their assessment process will establish the efficiency of your charity. Best that you know it first and make appropriate changes.

These are three examples of relatively straightforward activities that trustees should ensure are reviewed annually. Others include: away days for the board and senior management teams; appraisal and training programmes; management and board recruitment and induction procedures; and risk reviews (in compliance with SORP [Statement of Recommended Practice] principles). Start by listening to your stakeholders. This will point you to those areas you need to review first. Be honest with them – accept criticism and work with them. If you’re canny, they may even help you with some funding for the review. After all they do have a vested interest in your ‘sustainable’ success.