Charities, still reeling from severe disruption to services and loss of fundraising income from the Covid pandemic, are having to contend with a fresh crisis around the cost of living.
This has seen donations tumble amid double digit inflation as charities face their own rising costs.
Paying to keep offices and centres heated and lit are among urgent challenges. This is particularly important as government ministers have announced a substantial scaling back of government support to pay energy bills, from £18bn over the last six months to just £5.5bn from April this year to March 2024.
As household income takes a battering the number of families in need of charity support, particularly from food banks, has also swelled. This surge in demand comes at the worst time for charities, which are already worried about whether they will survive long term due to financial pressures.
Already several charities have been forced to close. Most recently this includes Cornwall based mental health charity Sea Sanctuary, which in January announced it is to shut down after a last-minute fundraising plea for £200,000 to avert closure, failed.
An important message from our CEO and founder Joe Sabien. 💙 pic.twitter.com/vCTThMRfDy
— Sea Sanctuary (@seasanctuaryMH) January 3, 2023
Charities are already having to make difficult decisions to safeguard their future amid this financial turmoil.
Here we detail latest advice, most recently from the Charity Commission, on how charities can give themselves a fighting chance to continue supporting people and avert closure during the cost-of-living crisis.
Charity Commission advice
This month the regulator produced a guide for trustees to help tackle “difficult decisions about their charity’s financial position”. Included is a section offering advice on measures charities need to consider to ensure they can continue operating and delivering support through cost cutting and boosting income where they can.
Many #charities are facing challenges related to the cost of living.
— Charity Commission (@ChtyCommission) January 5, 2023
Read our guidance for charity trustees on managing financial difficulties: https://t.co/1Z2SJOaxWi pic.twitter.com/9dr1WeBU6Y
Cutting costs
Charity Commission advice includes putting a hold or stopping non-essential costs, while taken into account any cancellation fees as well as finding alternative, cheaper ways to operate, such as using chat bots to free up specialist staff to deal with more complex cases.
Investigating collaboration with other charities, such as sharing facilities, resources and negotiating cheaper deals with suppliers is another piece of advice given to cut costs.
Also, charities are urged by the Charity Commission to talk to their lenders to see if any loan repayments can be rescheduled over a longer period. This could prove essential for charities looking to spread costs involved in their debt over time.
Reviewing funds and risks
Charities with reserves are urged to review these funds to see if they can be used to tackle any current financial difficulties. This may mean deferring or cancelling future, long term spending commitments, but may be the difference between survival and closure.
Most charities’ income blends restricted funds that funders want to see spent for a specific purpose, and unrestricted funds where there is greater flexibility over funding. Charities are urged to speak to their funders to encourage them to offer unrestricted funding to help counter immediate financial issues.
Funders offering unrestricted loans can be especially important to tackling recruitment and retention issues, so that the best staff are in place to meet beneficiaries’ needs. Analysis released last year by the Community Foundation found that the charities most in need of support to counter recruitment issues are large organisations, those in the Northeast and those who are most reliant on dwindling government funding.
Among organisations calling on grant makers to focus on unrestricted funding to better support charities is IVAR. Research published last year by the charity also called on funders to offer multi-year funding to offer further financial security.
🆕During November 2022, 32 charity leaders came together to talk about the impact of the #CostOfLivingCrisis and what would help.
— IVAR (@IVAR_UK) December 8, 2022
Our short briefing shares:
🚨What keeps leaders awake at night
💸How funders can help
🧭What charities can do
👉https://t.co/JoSoAg09mn pic.twitter.com/QifqMctWIp
Boosting Income
As well as discussing financial concerns with funders to improve income, charities are also urged to talk to donors. Charities are urged by the Charity Commission to explain any current financial difficulties to donors and consider raising funds through an emergency appeal.
Charities are also urged to talk to donors and supporters to tackle any barriers through the cost-of-living crisis that are preventing them from taking part in fundraising activities. Perhaps fees for events are too high for them? Charities are urged to reduce such costs.
Among those already doing this in 2023 is Kiltwalk in Scotland, which last year raised £8m. This year’s fee is being cut from £32 to £20 “in recognition of soaring inflation” say organisers, in a move that is being underwritten by the event’s backer the Hunter Foundation, set up by philanthropist Sir Tom Hunter.
Focusing on boosting income from a trading subsidiary is another strategy the Commission urges charities to pursue. But where a subsidiary may be faring less well amid the cost-of-living crisis the regulator urges charities to consider whether continuing the operation is in the best financial interests of the organisation.
Consider merging
While collaborative working can save costs through economies of scale, further savings can be made through the bold step of taking such an arrangement further through a merger. For charities that support similar causes the move can also improve their influence. Service delivery can improve as often charities considering mergers have offer help that complements each other. Above all a merger can be vital to avoid services closing down.
Among the latest high-profile charities to make this move are Fight for Sight and Vision Foundation, which will merge in April. The move combines the Foundation’s focus on supporting projects for those with sight loss with Fight for Sight’s funding of scientific research into a single organisation that will have “both a clinical and social perspective,” according to the charities.
Offer money not goods
Another cost saving measure proposed amid rising inflation is to offer money to those in need, rather than food parcels.
This can be a more efficient way of delivering support, as families know best what they need. It could also save charities on overheads, such as leasing premises including warehouses to house goods to hand out.
The move is being advocated by New Philanthropy Capital’s policy manager Theo Clay, who says: “Instead of forcing people to be passive and grateful recipients waiting upon generous charity, why would we not give people some of their agency back?”
“In giving goods rather than cash, we’re saying that we know best. Why aren’t we allowing people to make their own choices about how to overcome the barriers they face?”
The move is already being adopted in Canada through the New Leaf Project that supports homeless people in Vancouver.
Legacy income challenges
The growth in property prices in recent years has seen a boost in legacy income.
But charities reliant on these gifts in wills should be warned that the fall in the value of homes amid the cost-of-living crisis could significantly hit their income.
Amid the financial crisis, charities need to find new ways to generate income to ensure they are not too dependent on falling value of legacies.
Consultancy Legacy Foresight is predicting a 3% fall in legacy income over the next two years due to plummeting value of property. Figures from property website Home.co.uk found that prices fell by 2.4% in just one month at the end of 2022.
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