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Challenging times for charities – what can be done to pave the way to a better future
Nicola Layland, Director Leonard Curtis Hampshire
The last four years have presented companies with a number of challenges, with Brexit, Covid-19, energy price hikes and interest rate rises being just a few of the issues seen. Charities particularly are facing challenging times, with many reporting that they no longer feel financially stable.
Due to the issues being faced there has been an increase in charities ceasing to trade with some entering into a formal insolvency process as a result.
The number of charities entering insolvency has increased markedly, in 2023 the number of insolvencies in charities registered at the Charity Commissions reached its highest figures since the financial crisis of 2008, the majority of these entering into insolvent liquidation.
The small and medium-sized charities are disproportionately affected. These organisations often lack the financial reserves that larger charities possess. Consequently, they are more vulnerable to economic impacts.
What are the current issues?
Reduction in regular donations
The economic downturn has resulted in lower disposable income for many individuals and families. With people tightening their belts, charitable donations have seen a significant drop. Many smaller charities rely on a high volume of small regular donations to assist with cashflow. With fewer adults now giving regularly compared to previous years this has caused significant issues for some charities.
Reduced government support and grants
Many charities rely on government grants and support to keep the doors open. With austerity measures there have been some obvious cuts, as well as budget reallocations. This has seen funds moved away from charities which were previously awarded annual grants.
With the change in government there will be further concerns in the sector, producing uncertainty on what future support may look like for different charities. A charitable cause that was key for the conservatives may not be a priority for labour, especially when attempting to balance the books.
Charities are less capable of being able to pivot, and can find it difficult to fill gaps in the cashflow.
Rising operational costs
Inflation and supply chain disruptions have driven up the costs of goods and services. Charities, particularly those dependent on physical resources or venues, face increased costs to meet the operational needs. Energy price hikes have further strained budgets.
Demand for services
At the same time funding has decreased, the demand for charitable services has increased, particularly as a result of the cost of living crisis. More people are relying on food banks, mental health support, and housing assistance provided by the charities that are experiencing reduced income to meet this demand.
What can charities do to pave the way to a better future
It is not all doom and gloom for charities, there are ways forward, which is key for those providing vital services. Just a few options are below, there will be plenty more.
Review restricted fund policies
When donations are made, these can be put into restricted funds, for example if funds are donated to be assigned a specific project, those funds can be restricted and can only be used for that purpose. This could mean that the charity has cash at bank but is unable to use it as it has been designated for specific use. If, however, the charity is unable to continue as it cannot meet it costs, then these funds could not be used for the designated use as the charity would have to close.
It could be agreed that these funds be transferred to unrestricted funds, to meet general costs rather than the charity failing due to cashflow constraints. The funds would need to be lawfully released and specific advice must be taken before attempting to make any changes.
Mergers and joining forces
Some charities have formed strategic alliances with others to try to reduce overheads and general operation costs. Where two small charities may not be sustainable, the synergy from combining them could increase performance and increase cashflow. It could be joining forces on an informal basis or a legal merger, moving the two entities into one, either a transfer from one charity to another, or both merging into a new entity. Again, specialist advice must be sought but it could be a lifeline for those struggling.
Embracing digital
Some smaller charities may still be using traditional fundraising methods, digital tools and platforms could be utilised to cut costs and also reach a wider audience. Whilst online platforms do charge fees, the income that could be generated from these may far outweigh the fees being charged and may reduce the overhead of trying to generate funds without the use of technology.
Attracting new trustees
It may be a time to bring new blood into the charity, new trustees will likely bring new ideas at a time when it is most needed. It is worth considering how to attract these trustees, most people do not step up as they do not think they are required. Trustees should not be afraid of asking for help, as this may be the only way to get others to join. Some may be put off becoming a trustee due to the uncertainty of what would be required, and any potential personal liability.
A pack could be put together for prospective trustees to explain everything, providing comfort. Consideration may also be given as to the structure of the charity, it is more likely that those interested would be comfortable being a trustee of an incorporated entity (a CIO, company limited by guarantee etc.), rather than an unincorporated entity which brings with it inherent risks. Again, advice should be sought before making any changes.
Can the future be bright?
Whilst the last few years have resulted in significant challenges for charities, those that can adapt may well find that there are opportunities to grow in difficult times. Through diversification, strategic alliances and the use of technology these charities can be as strong as ever, providing vital services when they are most needed.
If you have any concerns, it is always best to reach out to a professional advisor sooner rather than later, as there will be options to understand the best way forward. Contact us on 01489 550440 or www.leonardcurtis.co.uk/contact.
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