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The cost of living crisis: what can your charity do?

What can charities do to protect themselves at times of high inflation and soaring costs? Tracey Moore, Head of Charities and Not-For-Profit at UHY Hacker Young, provides an overview for charity leaders.

UK inflation, the rate at which prices rise, hit a 40-year high of 9.4% in May 2022 and the Bank of England has warned that UK inflation could reach 11% by the end of the year.

Along with soaring energy costs and higher fuel and food prices, the cost of living is rapidly increasing pressure on household budgets.

So, what does this mean for charities? And what can you do to weather the storm?

Firstly, let’s look at the main ways rising inflation is likely to affect the sector:

Costs will rise

Inflation is a measure of how much the price of goods and services increase over time; so as rates soar, so too will your costs.

One of the most notable cost increases across all sectors will arise from salary increases if wages are not to fall in real terms.

In the charity sector, according to the NCVO, staffing costs account for 37% of total expenditure, so any increase in pay to ensure your teams are not worse off could have a profound impact on the finances of your charity.

But if you avoid increasing wages, there is a risk staff will leave and you will struggle to replace them. In addition to higher staff costs, you will need to factor in increases in business rates, materials and energy supplies.

Income from fundraising and donations could fall

Just as life returns to some sort of normality and you are able to hold in person fundraising events again, along comes soaring inflation and a cost of living crisis.

As household budgets come under increasing pressure, people will have less disposable income and those struggling will inevitably stop nonessential expenditure. This means that, once again, the sector is likely to see a knock to donations and fundraising efforts. Fundamentally, as costs rise, there is a risk your charity’s income could struggle to keep pace.

Demand for services may increase

The vulnerable will likely be the hardest hit by the rise in inflation, which in turn is likely to drive up the demand for many charities’ services. This will result in some charities facing greater demand for support, whilst trying to maintain services with a reduction in donations.

In a recent survey by the Charities Aid Foundation of more than 1,000 voluntary sector chief executives, 75% said demand for their organisation’s services had increased during the coronavirus pandemic and 86% expected demand to rise over the next five years. Over 90% of those polled thought charities would be expected to fill the gaps in public services over the coming years.


The sharp spike in inflation could put a real strain on your income and operating model so your financial planning strategy must be robust. When it comes to keeping your charity up and running, knowing the right questions to ask and where to find the information you need can make all the difference. Even if your charity appears to be in good financial shape, it may not be immune, depending on how long it takes for inflation to return to normal levels. Below are some practical tips and advice to help you ensure your charity is prepared.

Have a good understanding of your charity’s financial position and a strong reserves policy

It is essential that you have a good overall understanding of the financial health of your charity. When planning budgets, factor higher than anticipated costs into any assumptions and review every cost from the bottom up, with a view to cutting and saving, where possible.

Prepare regular cashflow forecasts to assess financial viability, whether it be on a sheet of paper or using one of the latest software models (or ask for our help!). You need to always have a clear idea of how cash will flow in and out over the coming months.

Reviewing how much your charity receives and spends against your budget enables you to identify problems quickly and agree a solution and change in strategy to bring activities back on course. It is also essential that you have set a strong reserves policy, and for this to be reviewed regularly to ensure that too much or too little is not being set aside.

Continually consider how you can diversify income

It is important to ensure your income stems from several sources, allowing you to spread risk and promote long-term financial stability. Sufficient income diversity means that, even if your main source of income is removed, you will be able to continue your operations and fulfil your charitable objects. It is an ongoing, evolving process that you should consistently revisit.

Determine demand for your services

If you think the demand for your services are going to increase, make sure you plan ahead. This may mean getting creative to find different ways to generate income. As highlighted above, the key to maintaining or increasing resources is to diversify income, so that if one revenue stream dries up, you can turn the tap on faster elsewhere.

Look after your people

This is key. Get your teams involved by getting them to suggest ways to diversify income or streamline the costs. Some of your people may be starting to struggle with the rising cost of living and communication is key in maintaining morale and employee motivation. Some cutbacks may be necessary and, if you are going to struggle to increase wages in line with inflation, make sure you enter wage negotiations early.

Review investment strategies

If you have substantial cash reserves, you should review your investment strategies to make these reserves work harder as inflation rises.

Review leases and loans

Try to reduce your fixed costs by renegotiating fixed outflows such as lease and loan terms, for example, your agreement with your landlord.

Consider outsourcing

What do you do that others could do better and/or cheaper for you? Payroll, accounting, IT support or perhaps HR? Outsourcing can provide a number of long-term benefits including cost cutting, increased efficiency and reduced staff costs.

Take early advice to manage financial difficulties

As a trustee, you have a legal duty to look after your charity’s money and other assets. You need to understand and keep track of your charity’s income and spending to spot any issues as early as possible.

If your charity is a company or charitable incorporated organisation, it could become insolvent and face administration or closure if it can’t pay its debts. If your charity is an unincorporated association or trust, you and the other trustees could be liable for its debts.

You therefore need to be able to take a quick and realistic view of current options so you can rapidly turn things around, if necessary. This means identifying and acting on opportunities for strategic, operational and financial change. If you discover you are in financial difficulty, you must take professional advice as early as possible as this will help you work out what action to take.

The charity sector has already proved its resilience in the way it has adapted and changed over the course of the past two years, and we have no doubt that the sector will overcome this next challenge.


This article was first published in Charity and NFP Sector Outlook 2022/23 by UHY Hacker Young Chartered Accountants.


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