It is also an incredibly useful tool for finance professionals seeking to plan for the future. Knowing where your organisation should go next requires an understanding of where the charity sector has come from. My recommendation would be to take 45 minutes out of your busy schedule, maybe on the way home on the train or bus, and read through it. You won’t regret it. But here are some quick thoughts:
1. Charities are diversifying for the future
Sometimes you can get the impression from politicians, business people and those outside of the charity sector that we are a bunch of dinosaurs. We need to ‘get with the programme’ and adapt ourselves to the new post-austerity world. I think that the Almanac paints a very different picture. If you look carefully at the numbers, you can see the sector deploying a very rational and methodical approach to coping with funding pressures and increasing demand – along the lines outlined in a financial sustainability review into the voluntary sector (2015).
Charities are not waiting for the good old days of government largesse to return, they are being entrepreneurial. Earned income from the public (both charging for services and fundraising) has risen by over 10% since the recession hit. Government income did rebound slightly, but it is clear that charities are not waiting around for this. Foundations and trusts are also recognising the importance of diversifying the income of the sector and have increased their giving. This was first identified in the ACF Giving Trends 2015 report, and shows that all parts of the sector are working hard to make the most of their resources and meet the needs of beneficiaries.
One could argue that the danger to the sector is actually the opposite, that in the pursuit of innovation and new funding sources, we lose touch with our values. This is why the role of trustees is so important and finance professionals need to keep in mind the beneficiaries and values of the organisation when setting strategy. Policy makers should also recognise that targeted and time-limited strategic investment can play a big role in helping this transition, particularly for the small and medium sized organisations which leads onto...
2. Small and medium sized charities won’t survive unless funders take action
Charlotte Ravenscroft, Head of Policy and Research at NCVO, made a very powerful point when she said that non-intervention to support small and medium sized charities was also a policy decision. Many of you have read the Almanac’s prequel. The picture isn’t rosy. The bigger you are, the easier it is to diversify. This isn’t just a question of money (which is a big factor of course) but also of skills and contacts. Smaller charities are more likely to be isolated or lack the connections to be able to identify new opportunities.
We need to reform government procurement so that more contracts are broken up, implement social value legislation properly and enable charities to carry out full cost recovery (see our worrying benchmarking results on contract losses). But it is much broader than that, we need to see funders (particularly public bodies) embrace their role as market stewards. Stewardship means taking into account the need to manage the market place, to ensure a diversity of provision; cultivating it so that small and big can operate together, and preserving valuable skills and relationships. This means working with partners and investing resources. In the short term, it costs and there aren’t buckets of money laying around. But the long term rewards of properly functioning market places with a range of expertise must not be discounted. Without this stewardship, it is likely that small and medium sized charities will struggle – and we’ll come to regret this 5 or 10 years down the line. Central government needs to set the tone and the Cabinet Office has a critical role to play in this regard.
3. Pension deficits are not going away
It wouldn’t be a CFG blog without referencing pensions. But the Almanac is a useful reminder that pension deficits in the sector are not going to go away. The picture got a little better, with the deficit closing by £200m from £1.9bn to £1.7bn. However anyone that believed that a return to global financial stability would see them melt away must surely realise their error. We need to get to grips with these deficits as a sector. Government can help by reforming section 75 rules on multi-employer schemes (of which many charities are members).
But charities also need to take early action. CFG’s experience with our members and experts is that often charities can negotiate and find ways forward – but not if you leave it to the last moment. Don’t be scared, reach out and get advice. Remember, it is in the interests of pension trustees and beneficiaries that your organisation survives, if it is viable. As a sector we need to be prepared to explain to the public about this financial situation. We must be open about the fact that we are going to have to pay off these deficits in the medium term – there is no alternative. Charities are going to go under as a consequence of this (this isn’t because of ‘poor charity sector management’, it is happening across the UK economy). If we get out early, explain the demographic pressures and put in place credible plans, we can avoid a lot of potential damage.
4. It costs money to make money
Contrary to the wonderland that the True and Fair Foundation live in, the fact is that if you want to grow your income streams, you have to invest in your organisation. Bringing in money, costs money. CFG doesn’t believe that fundraising ratios are all that useful when it comes to measuring the success of a charity’s fundraising strategy – but what the Almanac’s ratio does tell us is that there is no cheap way to grow your income. The fundraising ratio for the charity sector has hovered between £4-5 per £1 spent throughout the entire Almanac data series. Even in the most benign conditions, before the bubble burst in 2008/09, the ratio was just over £4.1 for every £1 spent. So we should have short shrift with those that say that there is nirvana where charities can cut back on spending on finance, fundraising etc. and generate the scale of resources sufficient to meet demand. Those that call for more efficiency and raise eyebrows about the amount we spend on generating funds are really asking for a smaller sector. Given the continued demand for charities services, I can’t see how that is the right thing for anyone.
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