Article

Cost-effective solutions for Charities facing financial difficulties

14th July 2023

Very often, challenges faced by charities can be resolved internally. This article looks at why and how charities can optimise their efficiency without compromising the happiness of the staff, volunteers and beneficiaries.

With the accelerating cost of food, fuel and energy; changes in mortgage interest rates; increased rents; increased borrowing; the aftermath of COVID-19; and economic uncertainty, charities are facing the same financial challenges as the rest of the country.

Examples of the challenges faced by charities

Reduced income – The Charities Aid Foundation UK Giving Report 2022 found that monthly donation levels in 2021 were lower than their equivalent in 2019.

Increase in demand for services without sufficient funds – The Charities Aid Foundation Charity Landscape Report 2022 found that 75% of charity leaders reported that demand for their services had increased above the first year of the pandemic, and 86% anticipated that demand would continue to increase.

Decrease in volunteer engagement – In 2021, the Volunteering and Charitable Giving – Community Life Survey found that persons aged between 25-34 volunteering once a month fell from 17% to 12%.

Increase in food, fuel and energy costs A third of local charities have seen an increase of 60% or more in their utility costs since September 2021.

How charities can tackle the challenges with cost effective solutions

  1. Best Practice – Good governance, trust and respect within any organisation are key to successful outcomes – for charities, the public expect this and will often withdraw support if they sense dysfunction. Charities should ensure that they embed best practice and effective lines of communication between staff, volunteers and trustees to ensure that any concerns are identified early.
  2. Review of governance – Ensure the governing document is up to date and accurately reflects the workings of the charity. It is also important to ensure that the trustees of the charity understand the range of powers available to them through their governing document such as borrowing money, selling assets and raising capital. Can they utilise assets more effectively? Can reserves be put to better use? Could committees – including non-trustee volunteers – take on new projects to support the work of the charity?
  3. Learn from and collaborate with other charities – In some cases, it may be worth considering merging with another charity. For example, where two grant giving charities are operating in the same area of the UK, a new entity can be set up merging the objects of the two charities and transferring the assets and liabilities of both charities into one.
  4. Review of contracts – Charities should review their contracts regularly and check whether there are any non-essential outgoings that they can lawfully terminate or suspend.
  5. Fundraising – The ‘cost-of-giving crisis’ demonstrates the importance of income diversity, as one source of income may well start to run dry for many charities. Charities should therefore consider modernising the ways they raise funds, such as email marketing, social media, flexible giving and gaming for good.
  6. Take advantage of reliefs and grants available
  • The Government has put in place the automatic energy bill relief for non-domestic customers until 31 March 2024.
  • Some charities are also able to benefit from the Government’s Energy and Trade Intensive initiative.
  • Utilising Gift Aid (if applicable) – when UK taxpayers donate to a charity or community amateur sports club, the organisation can claim Gift Aid tax relief, which effectively increases the value of donations by an extra 25% (at no extra cost to the donor).

In light of the above, whilst charities are feeling the challenges presented by the economic state of affairs, now is the time for trustees and stakeholders of charities to consider how their charity can not only survive but grow through the economic uncertainty.

Also, ensure that your use of professional advice is well managed – agree costs in advance, set budgets and provide clear, agreed instructions all in one go where possible in order to avoid costs rising unnecessarily.

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