5 common funding mistakes that you want to avoid
Funding applications can be a headache for social sector organisations. And they're not easy to get right. Carolyn Sims head of banking at Charity Bank looks at the five most common mistakes made in funding applications and how to avoid them.
“To be successful in securing funding, donations or contracts, charities and other social sector organisations have to prepare quite complex documents, and sometimes they can be let down by the quality of the business plans they submit,” says Carolyn Sims, head of banking at Charity Bank.
Charity Bank has highlighted the top five planning mistakes made in loan applications, in preparation for a business planning masterclass in November, and Sims shared her advice for avoiding them. “The solutions are not always simple or easy to find," she says. "But with careful preparation and help they can be put in place."
Five planning pitfalls and how to avoid them
1. Unrealistic financial projections: Particularly with new, untried initiatives or those involving a big increase in activity, organisations can be over-optimistic, often making unreasonable assumptions.
Carolyn’s solution: “While optimism is good, pragmatism is better. Organisations need to assess their projections dispassionately, and they should err on the side of caution on their expectations for both income and expenditure, and on how quickly the increase in activity will occur. For example, if an organisation has received £100,000 per annum in donations historically, is there a solid basis for its assumption that this will quickly double or even triple?”
2. Boards lacking the appropriate levels of skills or experience: Boards of trustees usually include people who are highly qualified in the specific activities undertaken by the organisation but sometimes lack someone with financial expertise.
Carolyn’s solution: “Charities should be willing to identify skills gaps and recruit additional trustees as appropriate. External professional support from organisations like The Cranfield Trust can bring in financial acumen and a commercial approach to borrowing.”
3. Lack of liquidity and appropriate reserves: It is unwise to believe that an organisation will never need access to additional cash during the course of a project.
Carolyn’s solution: “Potential borrowers need to consider carefully what level of resources will be needed to fund normal activities as well as the new project.”
4. Under-estimating project costs: Having identified probable project costs, organisations often forget that projects rarely go to plan; as a result they under-estimate the levels of contingency (back-up) they need to cover unexpected events.
Carolyn’s solution: “Organisations should identify the risks involved, for example increases in costs of materials, surprising ground conditions or the effect of bad weather, and hold an appropriate level of contingency funding (money to put to use in the case of unexpected events).”
5. Gaps in planning: The desire to take quick advantage of an opportunity that will facilitate the growth of an organisation and help it to increase social impact can lead to shortcomings in business plans.
Carolyn’s solution: “It is always the case that time spent on reconnaissance is seldom wasted. Organisations need to identify all possible risks to their projects and settle on the right mitigating actions; assumptions should be based on facts and the results of research; and the business plan should be subject to stress-testing to make sure it remains viable and robust in adverse circumstances.”
The business planning masterclass for social sector organisations is taking place on 3 November hosted by The Cranfield Trust, Deloitte and Charity Bank. It's aimed at organisations interested in writing robust plans, raising loan or social investment finance, or investing in major donor fundraising.
At the event, Charity Bank will examine the top five problems with loan applications and show how these can be remedied. Deloitte will run a number of sessions on how to make the business case for investment and how to articulate the impact that will be generated.
You can find out more or register your interest here.