A charity can make a surplus, providing it is used to further its charitable purposes. Generating a surplus is generally considered good practice for charities.
A surplus is important for the financial viability of a charity and can help account for expected and unexpected expenses in the future.
Based on data on Australian charities, charities are more likely to have a surplus than a deficit.
There may also be times when a charity experiences a deficit. A planned deficit, as part of financial management and overall operations of the charity, may in fact be helpful for the charity’s long term success. For example, a charity may experience a deficit in order to deliver immediate relief during a disaster.
There are a number of ways that surplus can be used, depending on the charity’s purposes and any relevant requirements in its governing documents or the law.
A charity could use a surplus by:
- implementing a new project or service
- keeping some money in reserve
- making a payment on a loan
- acquiring investments, or
- donating funds to another charity with a similar charitable purpose.