Sources of funding every charity should consider

Income generation. Two words that keep the majority of charity leaders awake at night.  

Raising funds to remain sustainable and fulfil their ambitions is the number one challenge facing charitable organisations (see our recent Charity Landscape report for the others).  

Shrinking budgets, political change and a turbulent economy are putting extra financial pressure on charities. Public funding has shrunk and competition for grants and donations is high. People are tightening their belts in the face of an uncertain future, while demands on charities show no signs of slowing down.

These changes have prompted a surge in financial creativity among charitable organisations. If a charity has the tools to generate income from different sources, they’ll be better able to bounce back quickly if revenue from one source dries up.

There are lots of great innovative strategies for generating income out there already being used by charities that we work with. Here are some of our favourites:

Social enterprise

Running a business that supports a charity not only creates a stream of revenue that’s within their control, it can also help the charity’s mission. Offering products and services (rather than just asking for donations) is a great idea, as they increase awareness and raise funds. It also creates a two-way relationship that's based on more than giving money.

The social sector is booming in the UK, with collaborative workspaces and cafes, bars and shops being set up and run using a social enterprise model. They generate their income through trading, but reinvest profits to fund their social or environmental activities.

But these projects aren’t just sources of funding. They can also provide work or volunteering experience for service users, and a point of access for people new to the charity. A great example of this is Old Spike Roastery in Peckham, a social enterprise that we’ve supported with social investment. They generate income from selling coffee to train and employ people who have been affected by homelessness.  

Offering training courses is a popular commercial approach, and a course run by a charity is an appealing idea for many people. You can use your knowledge to raise funds and spread the word about your charitable activities at the same time.

Delivering training courses harnesses the expertise and insights of a charity’s staff and volunteers, tapping into a resource they already have. Attendees gain knowledge and skills, and they’ll also come away much more informed about what the charity does and why. For example, organisations like St John Ambulance and the Red Cross run first aid courses so businesses can get their first aiders trained.

Running a business can also help charities to get more in tune with potential corporate sponsors, as they’ll be facing some of the same challenges and may have business relationships in common.

Corporate partnerships

Corporate donations, in the form of one-off gifts or ongoing relationships, can provide an invaluable revenue boost.

To work successfully with a business, charities need to put on their corporate hat. Approach potential sponsors with a clear plan and a confident pitch to present, emphasising what can be achieved and the success story they’ll be part of if they invest. Last year we worked with Lawrence Weston Community Farm on their corporate donor strategy. They identified a number of new ‘products’ they could to offer to corporate organisations.

As with any relationship, compatibility is really important. We know charity partnerships that have lasted decades, as both parties have similar values, activities and priorities. Whether a business works in the same sector, has a customer demographic in common, or just believes in the same things, charities need to look for a meaningful connection.

For smaller charities, embracing existing ties and local community connections is important. For example focusing on people they’ve traded with in the past, or local organisations whose customers will recognise their name. Whatever size of sponsor, charities should look for a natural opportunity for collaboration, so that the relationship makes sense to donors and is in line with their mission.

Lending or unsecured repayable finance

Traditional lending or unsecured repayable finance from the likes of CAF Venturesome  can help finance diverse situations including bridging loans (for example to plug the gap ahead of a grant being available), growth capital to build core operations, match funding, or helping out during a cashflow problem.

Druglink is one of the many charities we’ve been able to help out with a loan. They approached us to raise the finance they needed to buy the building they were housed in. The £350,000 loan helped them buy the property, securing a stable, long-term home for the charity’s services, and a basis from which to grow.

Private donors

Private donors are also important. Rather than being the big cheque writers at fundraising events, many see themselves as entrepreneurial investors seeking exciting opportunities to make a real difference; some look for financial return or at least capital repayment. 

They want to understand the difference their funds would make to an organisation and its beneficiaries. A strong multiplier effect and greater “bang for the buck” are inviting. For example, using their own funding to generate additional finance from other donors, improve a charity’s efficiency or core capabilities, or developing better impact reporting through stories and data. Identifying and nurturing these relationships takes time, but is extremely worthwhile!

Take advantage of digital

The recently released Charity Digital Skills report 2019 headlined the fact that 52% of charities don’t have a digital strategy. Charities should think about digital tools, such as their website, email and social media, as an opportunity to achieve their fundraising goals.

Online social channels give charities the chance to turn acquaintances into friends – changing one-off donors into regular donors. Capturing email addresses on websites and mailing everyone who has given permission regularly is key. It’s also so important to make it simple to give online and sign up to regular giving by showing supporters what even small regular donations can do for the charity.

Using the power of digital also gives charities the chance to experiment and see what works for their organisation. Sending different messages to different groups and finding out which raises the most money, for example, by prompting donors to encourage their friends to give. In an experiment by the Behavioural Insights Team (sometimes dubbed the Nudge team) just adding a message on the bottom of an email from an investment bank encouraging staff to donate to a charity increased the number of people donating from 6.1% to 38.8%.

The additional message simply said:

 "Please reach out and email your friends and colleagues and let them know about the huge contribution their donation can make – all they have to do is click this link – it's as easy as that."

If you’re a charity looking at how you can be there for your beneficiaries in the long-term you need to invest in longer-term financial strategy and business planning – taking into account all possible sources of income. Time is always scarce but an inadequate funding mix, short-term budgeting and one-off fundraising can eat up even more time and lead to more sleepless nights.