Navigating the cost of living crisis
Many individuals and businesses are already starting to feel the pinch of the cost of living crisis, and the numbers show that the charity sector is already feeling the impact. A recent survey by the Charities Aid Foundation revealed that more than one fifth of regular donors in the UK are considering reducing donations over the next six months. At the same time, charities are facing increased operating costs and energy bills are on the rise.
Increasing inflation levels in the UK are also significantly impacting the value of donations made by existing donors. A new report from Pro Bono Economics, in partnership with the Charities Aid Foundation, highlighted that the £5.7bn of total donations made to charities in the UK in the first six months of 2022 will be worth £500m less in real terms by year end. This comes when the demand for charity services is at an all-time high.
Start planning
Now is therefore the time to start planning and preparing for what lays ahead. If you haven’t done so already, take a fresh look at your processes around forecasting. Make sure that they are timely and if necessary, make them more regular. Mapping cash flow against policy reserves should be a key part of the decision making processes going forwards.
On the subject of decision making, now is also the time to think about the different services that your charity provides. Charities are not a homogenous group, and so there is no one size fits all way to advise on where spending should be cut back. Many charities have already cut back on office spending and encouraged more remote working to help keep costs down as well as enabling a better work life balance.
An important question that all charity leaders should be asking themselves is: Which of the services we provide make the most difference to the most people? It’s a difficult one, but it is better to start planning now where cuts might have to be made - rather than leaving it until they have to be made. It is also better to make cuts decisively rather than constantly chipping away which can be demoralising for those involved from all perspectives.
Keeping public trust
Last year the Charity Commission published its annual research looking at public trust and confidence levels towards charities in the UK. It showed that while public confidence is dropping for many institutions, charities remain one of the most trusted groups in our society. To keep the funding coming in, it's important that it stays this way.
Whilst it is vital it is recognised that charities (as with all organisations) need to be run effectively and thus will need to have the appropriate level of “overheads”, one of the biggest expectations from the public is that as high a proportion as possible of the funds they donate is spent on the end cause, and their donations are making a real, positive impact. Orlando Fraser, chairman of the Charities Commission, made the point that the public will be even less tolerant of financial carelessness by charities during times of financial crisis.
As part of this, consider therefore how you are communicating the impact of your work to demonstrate to your current and future stakeholders that you are making a real difference. There is an argument that this should not only be in your Trustees’ Annual Report but in a separate report with this specific focus to be shared with interested parties.
Diversify sources of income
Keep being proactive. Where else could you be looking for donations? Try as much as possible to diversify your income. By making sure your charity’s income comes from several sources, not only could you potentially raise more money, but you’ll also be better at spreading risk and protecting your charity against potential shocks both in the short and long term. Whilst it won’t be easy, there are a number of income streams that could be investigated - from government funding, charitable trusts, corporate donations, to earnings through trading.
Also, ensure that you are making the most of all tax reliefs available to your organisation; perhaps speak with your accountant or tax adviser. Lots of banks are starting to encourage individuals and organisations to speak to them directly if they have concerns around interest rates and repayments; if you think you might have problems it is certainly best to speak with them early on.
Revisit your digital strategy
Particularly for charities based in poorer communities, they face a tough catch-22 situation. These are charities which may be hit most by decreases in donations but are operating in areas of the UK where support is needed the most. If this applies to your charity, take a look at your digital strategy. Social media isn’t something that is tied to a specific town or county - it can be used to gain access to whole new audiences and potential donors.
It’s likely this is something you might have looked at during the national lockdowns. The most recent Charity Digital Skills report found that 82% of respondents saw digital as more of a priority as a result of the pandemic - but only around half said that they have a clear digital strategy in place. See where you can elevate your current strategy - you could potentially look at putting money into paid social media campaigns.
Investing in your team
The recruitment landscape is also challenging at the moment. Wage inflation is making it trickier for charities to hire and retain talent. For charity employers who aren’t in a position where they can increase salaries, there are alternative solutions out there.
One example is salary sacrifice arrangements. This is an agreement to reduce an employee’s entitlement to pay, generally in exchange for a non-cash benefit, for example pension contributions. The employee is taxed on less salary (and pays lower National Insurance contributions) and the employer should save on national insurance contributions. In this scenario, a charity employer might agree to share their NI savings with the employee as a sweetener.
Since the hiring process in itself is timely and expensive, employers should also make sure they are doing everything they can to keep staff. Upskilling and coaching wherever possible, and creating an inclusive culture where people feel able to bring new ideas to the table. Ensuring that people feel psychologically safe at work creates the best platform for innovation as it gives a safe environment in which to “fail”.
There is a good likelihood that a lot of people work for charities because they want to do meaningful work and the end cause is important to them, and so while charities might not be able to compete with the private sector when it comes to take home pay, a top priority should be to create a working environment where everyone feels respected and believes that there is room to grow.
Sharing ideas
There is a real chance for the sector to use this as an opportunity to share ideas and collaborate. Network with leaders from other charities, make the time to attend industry events and hear from other participants, read what other charities are doing on platforms like LinkedIn - and at the same time, make sure you are sharing what has been working for you. It might be that something you have thought of could be a lifeline for another charity struggling. In addition, think about where you could share resources such as training, office space and even potentially team members.
There’s no doubt the next 12 months will be tough for charities. Nobody knows how long a recession will last, but what is certain is that people will need the support of charities more than ever, and so the time to prepare for what could be next is now.
