The pressures on charity management

Charities in the UK are facing a number of pressures that can significantly impact their operations and effectiveness.

Many of these challenges are the same as those experienced by society during the pandemic and the uncertain world we now find ourselves in with the high cost of living and geopolitical tensions.

The organisations with more resources have fared well; they have adapted to change and are resilient in a world of uncertainty. Charities who were struggling going into the pandemic and didn’t adapt have found it much more difficult and are facing closure or have closed.

While the current economic environment is the catalyst to the inevitable demise of certain charities, it is not all doom and gloom. However, it is worth highlighting some of the key pressures not-for-profit organisations are facing:

1. Financial challenges

Many charities survived the pandemic relatively well, thanks to government support through furlough, loans and the grant makers who stepped up for support. As some of these financial support lines have finished, with reduced government grants and changing donor priorities, charities often struggle with securing sufficient funding to support their programmes and initiatives.

Charities with investments will have had a rocky ride but will have likely built up a good reserve after a decade of strong investment, so now is the time to spend some of those profits. There is no shortage of areas for capital expenditure beyond the annual grant cycle, with wage increases of around 5%. As interest rates rise, one positive is that charities who run employee pension schemes may have seen their pension valuation deficit shrink or even now be in surplus.

Lack of cashflow is one of the clearest ways to kill a charity, as is having trustees who make rash and poor decisions at the wrong time, such as selling investments when markets fall and not reinvesting when they recover. It’s important to get advice before this becomes a problem. While charities are not supposed to make a profit, it is not wise to have a high structural deficit. The need to budget well and plan your liquidity is vital.

2. Increased demand for services

Charities are often at the forefront of providing essential services and support to vulnerable individuals and communities. With societal issues such as poverty, homelessness, mental health, and social exclusion on the rise, charities are facing increased demand for their services, stretching their resources and capacity.

3. Donor and volunteer recruitment

Charities heavily rely on the support of donors and volunteers. However, attracting and retaining donors and volunteers has become increasingly challenging due to changing demographics, shifting donor preferences, and increased competition. Charities need to invest time and effort in engaging with their supporters and building meaningful relationships.

One important area to focus on is the need to diversify income streams if possible. While the demand for recycled clothing and goods is higher, charity shops and the high street have struggled (although Oxfam’s online shop is a good competitor to eBay!). Lotteries and legacies remain uncertain as living costs are higher, but investment and rental income remain steady.

With paper and postage costs up 20% year-on-year, being creative with fundraising and supporter communications is vital and many charities have used social media to their benefit. 

4. Regulatory compliance

Charities in the UK are subject to various regulatory requirements and reporting obligations, including financial reporting, governance standards, and compliance with charity laws and regulations. Ensuring compliance can be time-consuming and resource-intensive for charities, particularly for smaller organisations.

5. Public trust and reputation

Maintaining public trust is crucial for charities, as it affects their credibility, fundraising efforts, and overall impact. Instances of mismanagement, fraud, or unethical behaviour by a few charities can damage the reputation of the entire sector, making it harder for other organisations to gain public support.

6. Political and policy changes

Changes in government policies, funding priorities, and regulations can significantly impact the operating environment for charities. Shifts in political landscapes or policy decisions may result in reduced funding for certain causes or increased competition for limited resources.

7. Digital transformation

Technology plays an increasingly important role in the operations and fundraising activities of charities to enhance communication and operational efficiency. However, some organisations may struggle to adapt to the digital landscape, lacking the necessary skills, resources, or infrastructure to leverage technology effectively.

Addressing the pressures

To address these pressures, demonstrating the impact of their work is essential for charities to secure funding and maintain public support. Measuring and evaluating outcomes can be challenging and there is often a need for robust monitoring and evaluation frameworks to provide evidence of the charity’s effectiveness, but this comes with investment in resources, time and effort.

Consider collaboration, a partnership with other charities, a merger or simply spend out (spend what is left and close). Collaboration between charities, as well as with other sectors such as government and business, can help address societal challenges as well as build effective partnerships. Charity mergers have not been popular and people are often the problem. How many trustees and senior executives want to fall on their swords or relinquish the organisation they have set up or worked tirelessly for? Is this the time to swallow your pride for the sake of your beneficiaries? Whatever the solution, it will require investment in relationship-building and coordination. 

Charities are resilient as they rely on people, their staff, volunteers and good will. In the current climate, organisations that pivot and adapt in this changing world will succeed. Get proper advice if you need it and don’t be afraid to ask or challenge your operating model. If you wish to remain independent and grow your charity, it will require work, but maybe join forces for the common good. After all, it is what you spend, not what you keep, that makes you charitable.

Charity Intelligence, is a free online resource helping charities to reduce the time and costs associated with selecting the right investment manager, lawyer, accountant, or insurance provider.

The value of investments, and any income from them, can fall and you may get back less than you invested. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd.