Welcome to CENFACS’ Online Diary!
12 June 2024
Post No. 356
The Week’s Contents
• Matching Organisation-Investor via Charity Shop Financial Forecast – Activity 3 for the Match Period 12 to 18/06/2024
• Coming This Summer 2024: FACS Issue No. 84 to Be Titled as African Charities Investment Management and Poverty Reduction
• Project 30
… And much more!
Key Messages
• Matching Organisation-Investor via Charity Shop Financial Forecast – Activity 3 for the Match Period 12 to 18/06/2024
Both Africa-based Sister Charitable Organisation (ASCO) and Not-for-profit (n-f-p) Investor scored enough points in the Second Activity of the Matching Organisation-Investor via Charity Shop. They believe that it is useful to continue their talks and move to the third round of negotiations, which is Activity 3.
This third round of talks consists of agreeing on the financial forecast of the charity shop project; forecast to be presented by ASCO. ASCO needs to provide its plan or forecast for the three financial statements for three to five years to show how the shop will evolve. These statements are:
σ income statement portraying profit or loss over the above stated period
σ balance sheet pointing out the position of the shop each year during the same period
σ cash flow statement showing how much cash it has planned to come in and go out over the same period.
For the n-f-p charity shop impact investor, he/she is going to look at in detail ASCO’s plan for the finances of the charity shop, from income to operating costs and investments. He/she will evaluate the expected profitability and cash flows of the charity shop project. He/she wants to have a clear idea about the complete financial model of the shop with all the three financial statements sticking together and talking to each other. He/she would like to be sure that ASCO is navigating with a compass.
In this charity shop model of investing, the n-f-p impact investor is selflessly motivated. This n-f-p impact investor, who is driven by selfless motivations, would invest to reduce poverty. Although he/she is driven by selfless motivations, he/she would like to see the charity shop is a profitable business so that it can achieve its goal of reducing poverty by raising money for it through trading.
To reach an agreement, each side of this Activity 3 (i.e., charity shop founder and charity shop investor) needs to clarify what they are offering in the negotiation to meet the matching terms and conditions.
If this Activity 3 is successful, they will move to the next/last episode. Where the two (i.e., investee and investor) need support, CENFACS will work with each party to fill the gap.
More details about Activity 3 can be found under the Main Development section of this post.
• Coming This Summer 2024: FACS Issue No. 84 to Be Titled as African Charities Investment Management and Poverty Reduction
Crises and shocks of any kinds prove to show that charities of any sizes need to take investment management seriously. This includes African charities. Focussing on Africa-based charities, they do investment management; however little is known about their investment management drive since much attention on this matter is devoted to for-profit organisations.
In this 84th Issue of FACS, we are looking at investment management undertaken by African charities, particularly those charities based in Africa working and/or would like to work with CENFACS. However, before going any further in this outline of the basic information about the 84th Issue of FACS, let us to give a brief understanding of the concept of investment management since it is central to this Issue.
We can start with the meaning of investment. Investment can be defined in many ways which tend to have the same common denominator. Referring to the definition of ‘ourbusinessladder.com’ (1), this website states that
“Investment is the employment of funds with the aim of achieving additional income or growth in value. The vital feature of an investment is that it involves waiting for a reward. It involves the commitment of funds which have been put away from present expenditure in the hope that some benefits will accumulate in the future”.
Knowing what is an investment, it helps to understand investment management. Investment management is defined by ’emeritus.org’ (2) as
“The process of making decisions about investments. It involves researching, selecting, and monitoring a portfolio of assets that match an investor’s goals, risk profile, and timeframes. Investment management encompasses a wide range of investment opportunities for individuals looking to grow their wealth from stocks and bonds to real estate and other asset classes”.
Africa-based charities also make this sort of decisions. However, they would act within their charity power to invest and according to their governing documents (i.e., articles of association). It is this type of investment that their investment managers are able to decide and make that the 84th Issue of FACS is concerned with.
The Issue 84 will deal with strategy to manage investment risks; strategy that consists of spreading investments across asset classes and industries. In doing so, this strategy allows to balance returns on investment and concerns on the same investments.
The Issue 84 will also be a story of Africa-based charities’ care and skills in investment decisions. In particular, emphasis will be put on investment managers of these charities, on how they manage portfolio and deal with investment policies while supporting their organisations to measure risk tolerance relating to investments and reduce the impact of adverse economic change on portfolios and to continue to meet the needs of the poor. They can advise their organisations to invest in mixed assets funds or national equity funds or global equity funds or fixed interest funds or property and cash funds or green bonds.
Because we are talking about charities, investment management will be looked at in its capacity of helping these charities to achieve their charitable mission, particularly but not limited to poverty reduction. This is so crucial in challenging times like of those systemic crises namely the coronavirus disaster and other major shocks such as debt crisis in Africa. In these exceptional times, a good investment management can provide the foundations for resilience against these systemic crises or shocks.
To achieve their mission via investment management, CENFACS‘ Africa-based Sister Organisations have investment options from which they can choose. The 84th Issue will explore these options together the fund management houses in Africa, in particular how they can be helpful in responding to Africa-based Sister Organisations’ (ASOs’) investment strategic plan.
Without providing specialist advice on investment management to African charities, the Issue No. 84 is a general advice clinic for those ASOs that would like to take investment management seriously to help them achieve their mission without having to continuously worry if they have some lump of sum kept away from present expenditure in the hope to receive a reward.
To get inside scoop on the Issue No. 84 or to reserve a copy before its publication, please contact CENFACS.
• Project 30
To start this project, we are going to define it, highlight its implications and indicate its acts or themes.
• • What Is Project 30?
Project 30 is an initiative set up to deliver CENFACS’ Pearl Jubilee or Tricennial Year or Tricennium. It is a set of activities and events planned and to be organised to mark the 30 years of CENFACS since it was established in 1994. It is also part of the year 2024 as a Year of Transitions within CENFACS.
Project 30 is a series of activities and events to be organised by CENFACS throughout 2024 to remember what has been achieved in the last 30 years of CENFACS, to learn from this past and spot the future trends for poverty relief in an ever changing development landscape.
Project 30 is a smart (i.e. specific, measurable, achievable, realistic and time-bound) project that takes stock of the strengths of CENFACS in what happened in the last 30 years as well as looks ahead challenges, opportunities, risks and threats that CENFACS may face. It is about re-engaging with stakeholders in a renewed and climate-resilient future.
This project was designed to deliver CENFACS as a Tricennial Creation and to mark Tricennial Development for CENFACS‘ work with local people and Africa-based Sister Organisations.
Tricennial Development is a process of bringing better change in the lives of those in most needs. This process is designed with the aim of reducing poverty and hardships while enhancing sustainable development through the 30 years experience of CENFACS.
Tricennial Creation is the conceptualisation of CENFACS as an organisation which came into existence and which lasts 30 years.
There are implications deriving from the above-mentioned definitions.
• • Implications of Project 30 for CENFACS
Most of our work this year will be underpinned by a tricennial feature. It means they will command and enhance the values of freedom and capacities as tricennial legacies of CENFACS.
• • Acts or Themes of Project 30
Project 30 will be carried out under three acts or themes, which are as follows:
Act 1: Working with Local People (10 to 16/06/2024)
Act 2: Development of Sustainable Initiatives (17 to 23/06/2024)
Act 3: Enhancement of the Quality of Lives (24 to 30/06/2024)
The first two acts stem from CENFACS‘ charity objects while the 3rd act comes from CENFACS‘ mission statement. We are going to learn and share together what have learnt together in the last 30 years in terms poverty reduction and the enhancement of sustainable development. Let us highlight the first Act – working with local people.
• • • Act 1: Working with Local People (10 to 16/06/2024)
Working with local people is and will always be the cornerstone of our charitable work. In the last 30 years, we have tried as much as we can to work with local people. We know it is not easy. It has been about knowing and assessing the needs of the locals so that those needs can be met with the responses/solutions that the locals want for the problems they face.
In this Act 1, we would like to share our experience of working with the locals. We would like as well for the locals to feedback their own experience of working with CENFACS in the last 30 years. They can respond to our questionnaire on this matter.
As explained above, Project 30 is about learning from this past and spot the future trends for poverty relief in an ever changing development landscape. From the experience we had together with locals, we can together spot ways of improving our model of working together.
The above is the first Act of the Tricennium. For those who would like to support this Act and/or Project 30, they should not hesitate to contact CENFACS.
Extra Messages
• Systemic Resilience Capacity Rebuilding Project for Households – In Focus from Week Beginning Monday 17/06/2024: Design of Resilience Intervention for Households
• Execution of CEDM (Creative Economic Development Month) 2024 Sub-themes: Second Codes (from Week Beginning Monday 10/06/2024)
• Holiday Budget Clinics 2024
• Systemic Resilience Capacity Rebuilding Project for Households – In Focus from Week Beginning Monday 17/06/2024: Design of Resilience Intervention for Households
Any household needs to have the capacity of system to deal with shocks or stresses it may faces. They need to have the ability to anticipate, prepare for, respond and adapt to challenges, and build resilience for the future.
In this episode of our Systemic Resilience Capacity Rebuilding Project for Households, we will be working with households to find out the system design of the kinds of intervention that may be appropriate to them.
In this coming work with them, we shall explore ways of addressing vulnerability and resilience issues, discuss sustainable capacity building they need and identify the theory of change that suits them.
• • Addressing Vulnerability and Resilience Issues
Because we are in the month of creations and innovations, we can create and innovate together with households to find way of addressing the vulnerabilities and resilience problems they are facing. To do that, it may require a theory of change. Not all theories of change suit every household. It is good to identify and use the theory of change that is suitable for a given household.
• • Theory of Change for Households
Having a theory of change can help households in the process of dealing with shocks and stresses.
As the National Centre for Family Hubs (3) puts it,
“Your family hubs theory of change can
~ inform strategic decision-making
~ encourage a focus on outcomes and evidence
~ underpin evaluation and learning
~ enhance the effectiveness of provision
~ facilitate partnership working”.
Similarly, the Austrian Institute of Family Studies (4) explains by referring to the work of Weiss in 1995 that
“Theory of change is an explicit process of thinking through and documenting how a programme or intervention is supposed to work, why it will work, who it will benefit (and in what way) and the conditions required for success”.
The Austrian Institute of Family Studies argues that
“A theory of change is a diagram or written description of the strategies, actions, conditions and resources that facilitate change and achieve outcomes”.
These attributes of the family hubs theory of change together with the explanation of the theory of change given by the Austrian Institute of Family Studies can benefit households in need of systemic resilience capacity rebuilding. For these households to achieve resilience, they need to (re)build sustainable capacity.
• • Sustainable Capacity Building for Households
Most households have a certain level of capacity. Due to various circumstances of life, this capacity can increase or decrease or stay the same. It may need to be rebuilt or redeveloped since the nature and complexity of crises and shocks are changing.
For households that are subject to continuous shocks or stresses, they not only require capacity to rebuild themselves but a sustainable one. What is sustainable capacity building?
According to the US Institute of Peace (5),
“Sustainable capacity building is an approach that increases the likelihood of measurable and sustainable improvements in the targeted capacity of the recipient. It is an approach that lead to expected outcomes and impacts that measurably improve the capacity of the targeted function and/or recipient and that can be sustained long after assistance ends” (p. 5)
Knowing what sustainable capacity building is, it is possible to work with households to find ways of (re)building their capacity, to (re)design the type of resilience intervention they want or at least to direct them to the kind of resilience support they need in order to measurably improve the capacity of the areas of household that demand strengthening or simply care.
The above is the third way of working with households on resilience matter.
For those households that need support regarding their resilience matters and in particular to Design the Resilience Intervention for them, they should not hesitate to contact CENFACS.
• Execution of CEDM (Creative Economic Development Month) 2024 Sub-themes: Second Codes (from Week Beginning Monday 10/06/2024)
Our CEDM Working Weeks and Plan carry on with the codes for each sub-theme, which are
√ CENFACS as Unique Creation
√ Creations and innovations that are related to people’s/households’ transition processes for a climate-resilient future
√ Creations and innovations to reset our poverty reduction system
√ Creations and innovations linked to meeting basic spending needs.
Those who would like to engage with the CEDM 2024 can choose amongst the above-mentioned codes and contact CENFACS.
For example, if one wants to know more about CENFACS as a Unique Creation, they can contact. CENFACS will explain them what it means and discuss with them on how they can learn more about it and participate or support any events linked to CENFACS as a Unique Creation.
Likewise, to transition to a climate-resilient future, it requires creations and innovations in terms of transition processes. For example, one of the areas of transition is energy transition. If they want to transition in energy, they can keep or embrace processes that will help them to transition away from polluting energy (like fossil fuels) to avert the worst effects of climate change. Those who would like to work with CENFACS on their transition processes, they can let CENFACS know.
Equally, to reset our system for poverty reduction, it demands creations and innovations. Those who will be interested in working with us to reset our/their system for poverty reduction through creations and innovations, they should not hesitate to communicate with CENFACS.
Finally, to improve the way any household meet its basic spending needs, certain creations and innovations may be needed. Those households that would like to work with us on creations and innovations to improve the meeting of their basic spending needs, they can as well contact us/CENFACS.
The above is the second execution of our CEDM 2024 Working Weeks and Plan.
For those who may be interested in any of the second codes of each sub-theme of this plan, they can contact CENFACS.
For those who would like to learn more about CEDM 2024, they can also communicate with CENFACS.
• Holiday Budget Clinics 2024
As we are heading into the summer holiday season, we are holding holiday budget sessions or clinics for those who need them. These sessions or clinics are part of CENFACS‘ service offered under financial advice, guidance and information about funding for holiday (i.e., Finance 4 Holiday) and restricted holiday budget.
• • What Are Holiday Budget Clinics (HBCs)?
HBCs are customised sessions of consultation for those with holiday budgeting needs who want special advice on the matter of making, revising and executing a holiday budget (including holiday budget subject to restrictions from donor/funder).
• • How CENFACS Can Work with HBC Applicants
Through HBCs, we can offer the following three free-of-charge sessional services:
a) Budget set-up session
Under this sessional task, we can work with the applicants to create their holiday budget.
b) Budget verification or clean-up session
If you have already done your budget, you want us to verify it.
c) Full budget session
If you want us to write it from scratch, verify and advise you including on how to use online budget planner or calculator as well as Generative Artificial Intelligence to ask for help.
To arrange for a holiday budget session, you need to book an appointment.
Message in French (Message en français)
À paraître cet été 2024 : le numéro 84 du bulletin FACS qui s’intitulera ‘Gestion des Investissements des Organisations Caritatives Africaines et la Réduction de la Pauvreté’
Les crises et les chocs de toutes sortes montrent que les organismes de bienfaisance de toutes tailles doivent prendre la gestion des placements au sérieux. Cela inclut les organisations caritatives africaines. En se concentrant sur les organisations caritatives basées en Afrique, elles font de la gestion d’investissements. Cependant, on sait peu de choses sur leur campagne de gestion des investissements ou placements, car une grande attention est accordée aux organisations à but lucratif.
Dans ce 84e numéro de FACS, nous nous intéressons à la gestion des investissements entreprise par les organisations caritatives africaines, en particulier celles basées en Afrique qui travaillent avec le CENFACS et/ou qui souhaitent travailler avec nous. Toutefois, avant d’aller plus loin dans cette introduction de ce 84e numéro de FACS, nous allons donner une brève explication du concept de gestion des investissements puisqu’il est au cœur de ce numéro.
Commençons avec le mot investissement. L’investissement peut être défini de plusieurs façons qui ont tendance à avoir le même dénominateur commun. Se référant à la définition de «ourbusiness.com» (1), ce site web indique que
«L’investissement est l’utilisation de fonds dans le but d’obtenir un revenu supplémentaire ou une croissance de la valeur. La caractéristique essentielle d’un investissement est qu’il implique d’attendre une récompense. Cela implique l’engagement de fonds qui ont été mis de côté sur les dépenses actuelles dans l’espoir que certains avantages s’accumuleront à l’avenir».
Savoir ce qu’est un investissement permet de comprendre la gestion des investissements. La gestion des investissements est définie par «emeritus.org» (2) comme suit:
“Le processus de prise de décisions sur les investissements. Il s’agit de rechercher, de sélectionner et de surveiller un portefeuille d’actifs qui correspondent aux objectifs, au profil de risque et aux délais d’un investisseur. La gestion des investissements englobe un large éventail d’opportunités d’investissement pour les particuliers qui cherchent à faire fructifier leur patrimoine, des actions et des obligations à l’immobilier et à d’autres classes d’actifs».
Les organisations caritatives basées en Afrique prennent également ce genre de décisions. Cependant, elles agiraient dans le cadre de leur pouvoir d’investissement caritatif et conformément à leurs documents constitutifs (c’est-à-dire les statuts). C’est ce type d’investissement que leurs gestionnaires d’investissement sont en mesure de décider et de faire qui est concerné dans le 84e numéro de FACS.
Le numéro 84 traitera de la stratégie de gestion des risques d’investissement; qui consiste à répartir les investissements entre les classes d’actifs et les industries. Ce faisant, cette stratégie permet d’équilibrer les retours sur investissement et les préoccupations sur les mêmes investissements.
Le numéro 84 sera également une histoire sur le soin et les compétences des organisations caritatives basées en Afrique dans les décisions d’investissement. En particulier, l’accent sera mis sur les gestionnaires de placements de ces organisations caritatives, sur la façon dont ils gèrent les portefeuilles et gèrent les politiques d’investissement tout en aidant leurs organisations à mesurer la tolérance au risque liée aux investissements et à réduire l’impact des changements économiques négatifs sur les portefeuilles et à continuer à répondre aux besoins des pauvres. Ils peuvent conseiller à leur organisation d’investir dans des fonds d’actifs mixtes ou des fonds d’actions nationales ou des fonds d’actions mondiales ou des fonds à taux fixe, des fonds immobiliers et de trésorerie ou des obligations vertes.
Comme il s’agit d’organismes de bienfaisance, la gestion des placements sera examinée dans sa capacité d’aider ces organismes à remplir leur mission, en particulier, mais sans s’y limiter, en ce qui concerne la réduction de la pauvreté. C’est tellement crucial dans les moments difficiles comme les crises systémiques comme la catastrophe du coronavirus et d’autres chocs majeurs tels que la crise de la dette en Afrique. En ces temps exceptionnels, une bonne gestion des investissements peut fournir les bases de la résilience face à ces crises ou chocs systémiques.
Pour réaliser leur mission par le biais de la gestion des investissements, les organisations sœurs de CENFACS basées en Afrique ont le choix entre des options d’investissement. Le 84e numéro explorera ces options avec les sociétés de gestion de fonds en Afrique, en particulier comment elles peuvent être utiles pour répondre au plan stratégique d’investissement des organisations sœurs basées en Afrique.
Sans fournir de conseils spécialisés sur la gestion des investissements aux organisations caritatives africaines, le numéro 84 est une clinique de conseil général pour les organisations sœurs basées en Afrique qui souhaitent prendre la gestion des investissements au sérieux pour les aider à accomplir leur mission sans avoir à s’inquiéter continuellement de savoir si elles ont une somme d’argent sur les dépenses actuelles dans l’espoir de recevoir une récompense.
Pour obtenir des plus amples informations sur le numéro 84 ou pour réserver un exemplaire avant sa publication, veuillez communiquer avec le CENFACS.
Main Development
• Matching Organisation-Investor via Charity Shop Financial Forecast – Activity 3 for the Match Period 12 to 18/06/2024
Both parties (i.e., Africa-based Sister Charitable Organisation and Not-for-profit Charity Shop Investor) have made some steady progress so far as they continue to score points; points which are enough to enable them to enter the third stage of the matching talks. These matching talks will be about finding ways to reach an agreement on Charity Shop Financial Forecast.
To explain what is going to happen in this Activity 3, we have organised our notes around the following headings:
σ What Is Budgeting?
σ What Is a Financial Forecast?
σ Financial Forecast Statements to Be Part of the Matching Talks
σ Match Points for ASCO
σ Match Points for N-f-p Impact Investor.
Let us look at each of these headings.
• • What Is Budgeting?
Budgeting comes before forecasting your outgoings and incomings. Budgeting is, according to Christopher Pass et al. (6),
“The process of preparing budgets and exercising budgetary control. Budgeting encourages forward thinking by managers; serves to help coordinate different functions and departments in the firm; defines the responsibilities of individual managers; provides a framework for delegating responsibility; and provides incentives by setting standards of achievement” (p. 51)
The same Christopher Pass et al. explains that
“A budget for a firm is a firm’s predetermined plan (expressed in quantitative or financial terms) for a given future period” (p. 48)
When bringing its budgets for discussion, ASCO needs to make sure it distinguishes fixed from variable costs in its budgeting process and budgets. This distinction will help the n-f-p charity shop investor in a number of ways. For example, it can help to link the selling costs budget with sales budget.
Likewise, ASCO has to clearly present the different budgets that will make its financial forecast. This will help it to link budgeting process and forecasting process.
Examples of these budgets include the following ones:
~ sales budget indicating its planned sales
~ purchases budget giving an idea of its planned purchases
~ volunteer cost budget which explains the planned costs of having volunteers
~ capital expenditure budget which summarises its planned expenditure on fixed assets
~ cash budget which will show the overall cash position with cash inflows and outflows
etc.
The n-f-p investor would like to know if ASCO masters its various budgets which will make up the aggregated budgets of the financial forecast.
• • What Is a Financial Forecast?
The meaning of financial forecast used here comes from ‘netsuite.com’ (7), which argues that
“Financial forecast is a projection of a company’s likely future outcomes; forecasts are developed by finance leaders and consumed by business managers, investors and other key stakeholders”.
Another definition of financial forecast is given by ‘thebusinessplanshop.com’ (8), which explains that
“A charity shop financial forecast is a forward-looking tool that projects the financial performance of your business over a specific period (usually 3 years for start-ups)”.
The website ‘thebusinessplanshop.com’ adds that
“A forecast looks at your business finances in detail – from income to operating costs and investments – to evaluate its expected profitability and future cash flows”.
The n-f-p charity shop impact investor will do the same. He/she is going to look at in detail ASCO’s plan for the finances of the charity shop, from income to operating costs and investments. He/she will evaluate the expected profitability and cash flows of the charity shop project.
ASCO needs to make sure that its numbers add up in all the different scenarios of its business model. The good news is that ASCO has the opportunity from CENFACS’ Hub for Testing Hypotheses to financially test the scenarios of its business model by taking into account the stages of the business or economic cycle. These financial tests will be based on the financial statements carrying the financial forecast.
• • Financial Forecast Statements to Be Part of the Matching Talks
ASCO’s financial forecast will include
σ the forecasted profit and loss statement showing that the shop will be profitable in three to five years
σ the projected balance sheet assessing the financial structure and working capital requirement while pointing out the position of the shop each year of the planned period
σ the projected cash flow statement showing how much cash it has planned to come in and go out via consumption over the same period.
It is around these statements that the matching negotiations will happen. These three financial statements have to stick together and talk to each other. If they do not stick together or do not talk to each other, the charity shop investor may try not to go further.
For example, the estimates that are used to work out cash coming in and going out have to be accurate. Another example, cash flow forecasting is based on budgets. Therefore, there should be a link between the numbers in the budgets and those in the cash flow statements.
• • Match Points for ASCO
Financial forecasts are based on various indicators, parameters and variables including the economic and financial ones. Because of that, ASCO needs to clarify its indicators or variables such as key performance indicators for the charity shop. In particular, it can work out and explain different financial ratios and metrics relating to its financial statements as shown below.
In order to increase its points or chance in the matching talks, ASCO has a number of possibilities, which are:
Explaining financial ratios and metrics relating to the charity shop, providing indicators about its charity trading activities, talking about poverty indicators (e.g., Poverty Gap Ratio) and considering African factors as a further negotiating point.
Let us look at each point.
• • • Explaining financial ratios and metrics relating to the charity shop
ASCO can, for example, use the following financial ratios and metrics linked to the projected balance sheet:
∝) Working Capital = Current Assets – Current Liabilities
∝) Current Assets / Current Liabilities
∝) Debt-to-Assets Ratio
Another example, ASCO can as well employ financial ratios and metrics below related to its cash flow projections:
∝) Cash Return on Assets = Cash Flow from Operations (CFO) / Average Total Assets
∝) Cash to Capital Expenditure = CFO / Capital Expenditure
∝) Cash Flow to Net Income = CFO / Net Income
A further example, ASCO can appeal to financial ratios and metrics connected to the projected profitability of the charity shop, such as
∝) Gross Profit Margin = (Gross Profit / Sales) x 100
∝) Net Profit Margin = (Net Income / Sales) x 100
The above-mentioned ratios and metrics, which ASCO has to clearly explain, need to demonstrate that the project will be worth undertaken and a successful outcome. ASCO can use these ratios and metrics as financial monitoring tools to explain the n-f-p impact investor how it has planned to track the performance of the charity shop.
It is important to stress that financial figures or numbers from the financial forecast should not only speak for themselves. ASCO will be expected to explain them.
• • • Providing indicators about its charity trading activities
ASCO can refers to Return on Investment as investment tool and metrics.
∝) Return on Investment (ROI)
ASCO needs to explain what it means and how to measure it. Definitions of ROI tend to overlap.
For example, ‘corporatefinanceinstitute.com’ (9) defines ROI as
“A performance measure used to evaluate the returns of an investment or to compare the relative efficiency of different investments”.
Another definition comes from ‘forbes.com’ (10) that states
“ROI is a metric used to understand the profitability of an investment”.
There is also online ROI calculator for those who will be interested in it.
∝) Surplus Margin
ASCO can as well work out the Surplus Margin. What is it?
It is the following measure:
(Net income / Total income) x 100
The website ‘cranfieldtrust.org’ (11) explains that
“Generating a surplus allows a charity to invest in the improvement/expansion of charitable activities. If the surplus marginal overall is positive, you have made a surplus and your reserves will be boosted”.
For example, this measure can be used to find out the surplus margin of ASCO and its investment portfolios.
∝) Earned to Unearned Income Ratio
This ratio can be written as follows:
Earned Income / Unearned Income
The website ‘cranfieldtrust.org’ (op. cit.) argues that
“The ratio of earned to unearned income helps to show that the charity has developed diversified income as it has evolved. It is useful for donors and funders”.
For example, our ASCO that would like to trade can utilise this ratio to compare income earn from trading to incomes from unearned sources.
• • • Talking about poverty indicators (e.g., Poverty Gap Ratio)
One of the useful poverty indictors that ASCO can mention since the charity shop will contribute to the reduction of poverty is poverty gap ratio.
∝ Poverty Gap Ratio
Because charities exist to delivery public benefit not profit, ASCO will consider the impact of charity shop investor’s investments on poverty reduction. In other words, it deals with impact investing. To seize this impact, there could be a need to know the poverty gap ratio, which is an interesting metrics of poverty as it measures the intensity of poverty.
The online ‘marketbusinessnews.com’ (12) explains that
“The poverty gap ratio or poverty gap index is the average of the ratio of the poverty gap to the poverty line. Economists and statisticians express it as a percentage of the poverty line for a region or whole country…The poverty gap ratio considers how far, on the average, poor people are from poverty line”.
The above tools and metrics can be used in dealing with charity trading, investment and poverty reduction in Africa.
For example, one can use the poverty gap ratio to measure the average shortfall of the income of the poor people in Africa from the poverty line.
• • • Considering African factors as a further negotiating point
Since we are talking about setting a charity shop in Africa, ASCO must as well consider a number of factors in the country where the shop is going to be set up. These factors could be like these ones:
country investment risk report, the business climate, geo-political factors, geo-economic influences, fiscal policy like value added tax (VAT) on charities, environmental and climate considerations, peace and stability where the charity shop will be implemented, women and girls empowerment, etc.
Some of these factors can be financially factorised in the charity shop project’s financial statements.
For example, in countries where VAT does or does not apply to charity shops, ASCO can include this element in its budgets and forecasts when working out the sale prices.
The combination of a well handling of financial ratios and metrics together with African factors and charity trading indicators will help ASCO’s case.
• • Match Points for n-f-p Impact Investor
The points that the n-f-p impact investor will raise will revolve around the handling of the stages of financial forecasting. He/she will scrutinise the overall financial plan and objectives of the charity shop. He/she will do it knowingly that there are online financial forecasting software that ASCO can use, including a qualified business plan specialist or expert.
This is without forgetting the Generative Artificial Intelligence tool (like ChatGPT) which can provide answers to some of the financial forecasting search questions that ASCO may have. ASCO can use it safely and effectively as it may not always provide all the answers ASCO needs.
The n-f-p impact investor may want to know what will be the variances between the budgeted/forecasted numbers and planned outcomes. And if variances are significant, ASCO has to provide reasons for huge gaps. If there is a disagreement between ASCO (charity shop founder) and n-f-p impact investor (charity shop investor), this could open up an opportunity for a match/fit test. The match/fit test can be carried out to try to help the two sides. The match/fit test can also be undertaken if there is a disagreement on any of the financial forecast statements.
• • The Match or Fit Test
As part of the match or fit test, n-f-p charity shop investor’s view on ASCO’s financial forecast and plan must be matched with the information coming out of ASCO’s financial forecast and plan. In other words, ASCO’s projection of the likely future outcomes from the charity shop must be accepted by the n-f-p charity shop investor in order for the latter to invest in the charity shop.
The match can be perfect or close in order to reach an agreement. If there is a huge or glaring difference between the two (i.e., between what the investor wants and what ASCO is saying about its financial forecast, between what the investor would like the financial numbers to say and what ASCO’s financial numbers are really saying), the probability or chance of having an agreement at this third round of negotiations could be null or uncertain.
However, CENFACS can impact advise ASCOs (charity shop founders) to improve the presentation of their financial forecast. CENFACS can as well guide n-f-p charity shop investors with impact to work out their expectations in terms of financial forecast to a format that can be agreeable by potential ASCOs. CENFACS’ impact advice for ASCOs and guidance on impact investing for n-f-p charity shop investor, which are impartial, will help each of them (i.e., investee and investor) to make informed decisions and to reduce the likelihood of any significant losses or misunderstandings or mismatches.
The rule of the game is the more charity shop investors are attracted by ASCOs’ (charity shop founders’) financial forecasts the better for ASCOs. Likewise, the more ASCOs can successfully respond to charitable shop investors’ level of enquiries and queries about the financial forecasts the better for investors. In this respect, the matching game needs to be a win-win one to benefit both players (i.e., founder and investor).
The above is the third activity of the Matching Organisation-Investor via Charity Shop.
Those potential organisations seeking investment to set up a charity shop and n-f-p charity shop investors looking for organisations that are interested in giving, they can contact CENFACS to arrange the match or fit test for them. They can have their fit test carried out by CENFACS’ Hub for Testing Hypotheses.
• • CENFACS’ Hub for Testing Hypotheses
The Hub can help to use analysis tools to test assumptions and determine how likely something is within a given standard of accuracy. The Hub can assist to
√ clean, merge and prepare micro-data sources for testing, modelling and analysis
√ conduct data management and administration
√ carry out regression analysis, estimate and test hypotheses
√ interpret and analyse patterns or trends in data or results.
For any queries and/or enquiries about this third activity of Matching Organisation-Investor via Charity Shop and/or the programme itself, please do not hesitate to contact CENFACS.
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• References
(1) https://www.ourbusinessladder.com/investment-management/ (accessed in June 2024)
(2) https://emeritus.org/in/learn/finance-investment-management (accessed in June 2024)
(3) https://www.nationalcentreforfamilyhubs.org.uk/toolkits/theory-of-change/# (accessed in June 2024)
(4) https://aifs.gov.au/resources/practice-guides/what-theory-change (accessed in June 2024)
(5) https://www.usip.org/sites/default/files/Sustainable_Capacity_Building_Manuscript.pdf (accessed in June 2024)
(6) Pass, C., Lowes, B. & Davies, L. (1988), Dictionary of Economics, HarperCollins Publishers, London & Glasgow
(7) https://www.netsuite.com/portal/resource/articles/financial-management/financial-forecast.shtml (accessed in June 2024)
(8) https://www.thebusinessplanshop.com/en/start-a-business/guides/open-charity-shop#financial-forecast (accessed in June 2024)
(9) https://corporatefinanceinstitute.com/resources/accouting/what-is-return-on-investment-roi/ (accessed in April 2024)
(10) https://www.forbes.com/advisor/investing/roi-on-investment/ (accessed in April 2024)
(11) https://www.cranfieldtrust.org/articles/top-10-financial-ratios-forcharities (accessed in April 2024)
(12) https://marketbusinessnews.com/information-on-credit/gap-ratio–definition-meaning (accessed in August 2023)
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• Help CENFACS Keep the Poverty Relief Work Going This Year
We do our work on a very small budget and on a voluntary basis. Making a donation will show us you value our work and support CENFACS’ work, which is currently offered as a free service.
One could also consider a recurring donation to CENFACS in the future.
Additionally, we would like to inform you that planned gifting is always an option for giving at CENFACS. Likewise, CENFACS accepts matching gifts from companies running a gift-matching programme.
Donate to support CENFACS!
FOR ONLY £1, YOU CAN SUPPORT CENFACS AND CENFACS’ NOBLE AND BEAUTIFUL CAUSES OF POVERTY REDUCTION.
JUST GO TO: Support Causes – (cenfacs.org.uk)
Thank you for visiting CENFACS website and reading this post.
Thank you as well to those who made or make comments about our weekly posts.
We look forward to receiving your regular visits and continuing support throughout 2024 and beyond.
With many thanks.
