Charities should diversify their income sources to ensure that they are financially stable and resilient amid today's economic challenges. Allan Hickie from UHY discusses how your charity can approach income diversification in a number of ways.
Many charities can be dependent on a single or a small number of income streams. In today’s difficult climate for the sector, diversifying income can therefore be crucial for the sustainability and resilience of a charity.
Why should charities try to diversify their income?
Relying on a single income source can be risky. Diversification spreads risk and ensures that the charity can continue its operations even if one funding stream is reduced or eliminated, providing greater financial stability and increased resilience against economic downturns or changes in donor behaviour.
Long-term sustainability is usually more achievable with multiple income streams. A diversified income base can provide a more predictable and sustainable financial foundation, ensuring the charity can fulfil its mission over the long term.
It is also possible that exploring new income streams might provide expanded opportunities, and enhanced credibility and trust. A diverse funding base is likely to help build trust among stakeholders, including donors, partners, and beneficiaries, helping to demonstrate that the charity is well-managed and not overly dependent on any single source of income.
So, how should charities approach income diversification?
Charities can diversify their income sources in a number of ways:
Identify multiple funding streams
- Grants and donations - seek funding from various grant-making bodies, foundations, and individual donors.
- Explore the possibility of corporate sponsorships - establishing partnerships with businesses for sponsorships, corporate social responsibility (CSR) contributions, and employee matching gift programs can be a fantastic additional source of income whilst at the same time cementing a charity’s relationship with the local community.
- Membership fees - some charities may be able to implement a membership model where supporters pay annual or monthly fees for exclusive content or benefits.
- Events and fundraisers - events such as galas, auctions, and fun runs can be a great way to raise extra funds.
- Online campaigns - crowdfunding platforms and social media can be used to run online fundraising campaigns.
Develop earned income strategies
- Social enterprises - create social enterprises or business ventures that align with the charity's mission.
- Product sales - sell branded merchandise, publications, or products related to the charity’s work.
- Fee-for-service - charge fees for services provided, such as training, consultancy, or educational programs.
Leverage technology
- Digital fundraising - make use of online donation platforms, mobile giving, and peer-to-peer fundraising.
Build endowments and reserves
- Investment income - build reserves and perhaps establish an endowment fund where the capital is invested to generate regular income.
Overall, income diversification should strengthen a charity’s ability to fulfil its mission, support growth and enhance resilience.