The client
Our client on this assignment was a religious order of the Catholic Church working in England, Wales, Ireland, in the United States of America, Venezuela, India, and East Africa, where it is registered as a charity. Apart from their pastoral life in local parishes as priests and brothers, they are predominantly involved in healthcare and education, including education for the visually impaired, and also run a retirement home for blind men.
Situation
A performance evaluation report of charity's work in East Africa indicated that the future financial sustainability of the Charity was uncertain. Funds that were previously obtained from Europe had been diminishing and indications were that they would have run out in less than four years. This was going to severely affect the pastoral work that the priests did across five parishes, and threatened the survival of the charity's projects, which included a primary school; a secondary school, a hospital, a children's rescue center, a technical training high school, and a retreat center, 96% of whose funding was obtained from subvention and other donations, gifts and grants – largely from Europe.
In this situation, the client was faced with the following challenges:
1. Inability to grow or expand, particularly with respect to the training of priests for the local community
2. Lack of cash to meet regular operating expenses
3. Underutilisation and disuse of equipment and physical facilities to the point of obsolescence
4. Inability to service, maintain or otherwise meet the cost of ownership of the charity's assets
5. existential threat to the many livelihoods of people that worked and otherwise depended on the charity and its work in East Africa
Client requirements
Absence of a fund-raising strategy combined with inefficiency in financial exploitation of the charity's existing assets, was thought to be a key factor in the charity's financial inadequacy. The charity was therefore looking for appropriate advisory on the following:
1. how to optimally contain expenses in their ministry
2. how to obtain the greatest possible value from the cash inflows they received
3. how to maximise surpluses from its current projects without compromising the spirit of charity on which they were established
4. how to maximally exploit their vast investments in agricultural land and residential property, valued in total at over USD 12M
5. how to both establish alternative – and sustainable – sources funding to support its work in East Africa.
Our approach
We structured the assignment around the following:
1. Comprehensive profiling of the charity's capital assets;
2. Determination of the commercial value of each asset and therefore its reasonable return on investment given various extenuating circumstances;
2. Determination of the charity's current and projected financial requirements;
3. Assessment of investment and utilization options, based on the each assets’ potential for revenue generation;
5. Determination of the optimum mix in the charity's sources and application of funds;
6. Risk assessment of the charity's assets as the major source of long-term financial stability for the charity
Significant outcomes
Turning around the charity was going to be a long-term project. Our initial work was, therefore, specifically focused on laying a solid foundation on which all subsequent activities were going to be based. This entailed the following:
1. Evaluation of the financial efficiency of the charity's income generating projects
2. Evaluation of debt finance options for the charity to spur its revenue generating projects, and to make further long-term investments that the charity could depend on in the years ahead. We were targeting up to USD 2.6M secured lending and projecting a 25% return on the borrowed funds, assuming a commercial lending rate of between 15% and 17% to maintain a spread of eight to ten percent.
2. Determination of the optimum investment mix for the charity to obtain a suitable balance between long-term and short-term cash requirements for the charity, as well as in consideration of various investment risk factors
3. Review of the charity's strategic focus to determine its areas of priority and to achieve better coordination of the charity's activities
4. Development of a sustainable fundraising strategy for the charity
5. Reorganisation of the charity's governance and financial management model to enhance accountability for results
6. Capacity building in various key areas including corporate governance, planning and reporting, management skills, financial management, asset utilisation and control, budgeting and project management.
The charity has progressively implemented a mix of turnaround initiatives based on the above and has not only managed to grow its cash reserves and increase its surpluses, it has also managed to significantly grow its pastoral work in the local parishes it serves, and increased the number of priests in formation by over 65% over a period of nine years.
ARTEMIS Transition Partners
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Overcoming the asset rich, cash poor church challenge