Charity finances in uncertain times
January 2010
Just how recession proof is the third sector in the face of major funding cuts?
Eighteen months into the recession charities are battling on but face a tough year ahead, according to a recent survey of finance directors and chief executives across the sector.
Half of respondents surveyed by chartered accountants, Baker Tilly, reported no change in their total income levels over the last 12 months, while a drop of less than 10 per cent was experienced by 31 per cent of the non-profits surveyed.
Unsurprisingly those relying on government funding are expected to feel the burn in the coming months with imminent public spending cuts. Over a third of non-profits surveyed have already seen a reduction in government funding, with 65 per cent anticipating a further drop in the next 12 months. Investment income has also suffered during the downturn – 93 per cent of respondents have seen a drop in this funding stream and 55 per cent expect a further decrease over the next year.
The report highlights the delicate balance required for trustees to receive a clear picture of the charity’s financial position without being bombarded with information. Appropriate financial detail for a £1-5m income organisation should come in the form of monthly reports which outline key performance indicators as well as reporting on finance. Currently 30 per cent of trustees receive information monthly whilst 8 per cent of non-profits only produce management accounts on an annual basis.
In terms of taking action to get ahead, 61 per cent of charities have been or are seeking new sources of finance. Almost a third have or will be increasing spend on fundraising activities – a squeeze on the amounts donated by even loyal supporters means new and innovative approaches are more important than ever.
The impending general election is also a source for concern, with the stance of political parties on public funding set to shape the changes charities hope to see in the next year. A change in the VAT system sits at the top of the ‘wish list’ as charities could lose out on up to £0.5bn in irrecoverable VAT; full cost recovery on government projects and less red tape and bureaucracy are also common gripes.
The report recommends harnessing the ‘openness’ of the charity sector - by making good use of contacts, sharing best practice with other charities, bringing in professional advisers where necessary and making full use of guidance available to the industry - to get through difficult months ahead.
Sudhir Singh, Chairman of Baker Tilly’s Charities and Education Group described the year ahead as ‘a worry for many’ and told Caritas charities must start preparing for the challenge and embracing new ways of operating. ‘This week’s pre-budget report confirms that the squeeze on government funding is going to be very significant, but if charities can demonstrate that they are most effective at delivering public services this may prove to be an opportunity for some,’ he said.
Managing charity finances through uncertain times comprises a blend of opinions from finance directors and chief executives at a wide spectrum of UK charities, surveyed during September and October 2009. The full survey is downloadable here.
Author: Claire Shropshall
Claire Shropshall is the editorial assistant for Charity Funding Report, Caritas, and Codicil magazines. Claire has a BA in English Literature and Philosophy from Birmingham University and a Postgraduate Certificate in Periodical Journalism from London College of Communication. She previously worked in Central America as a voluntary reporter for an English-language newspaper.
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