The threat of stagnating income in the coming years is forcing charity finance directors to budget more prudently. According to the latest business trends survey from the BDO Stoy Hayward charity unit, FDs are most pessimistic about income from legacies and investment. Last year, charity income averaged £14m, while the current year is expected to see a rise of just £500,000 or 3.3%. Next year is also predicted to be poor, and charities are budgeting to generate no more than £15.1m on average. Including inflation assumptions of 2.8%, this amounts to real expected growth of 1.4%. Report author Don Bawtree said the impression of stagnation was depressing for the sector: 'A lot of organisations think it is going to be stagnant. If you do not grow how do you keep the dynamism going?' Charities face problems in budgeting and financial planning as budgets have to be prepared further in advance than for commercial organisations. Other areas covered by the report include two new accounting standards introduced for March 1999 year-ends. FRS11, requiring impairment reviews to consider whether the value of assets on books is justified, may affect depreciation rates and year-end asset values. FRS12 may also lead charities to recognise commitments earlier as liabilities and recognise losses on onerous contracts where relevant, the report states. FRS15 is effective from March 2000 year ends. It requires greater delineation between revenue and capital expenditure on fixed assets and requires revaluations on a more formal basis where historic-cost bases are not applied. The effect on budgets may be to introduce depreciation for the first time to change the approach to valuations and increase or decrease either maintenance costs or capitalisation of costs. Additionally, while funding has always played an important role in the voluntary sector, charities' ability to grow and enhance its impact may ultimately be influenced by other factors such as entrepreneurism, quality, skills and productivity, the report concludes.
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