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Neil Poynton

Head of Charities Financial Services Transformation
Charities Aid Foundation

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How can small charities navigate the economic landscape?

It was heartening to see the public appreciation for our charities during the pandemic – not least because it’s entirely warranted. Charities have been working tirelessly on society’s pressing issues, navigating dramatic changes in fundraising and operating environments and soaring demand for services, and their unique role and value have never been more evident.

And it is often the smaller charities that are working on the frontlines and putting in immense effort to support those most vulnerable in our communities -  from foodbanks and care support, to those providing financial guidance, mental health and disability support.

At the Charities Aid Foundation, we seek to support small charities with the invaluable work they do. Yet as we head into this year’s Small Charity Week, it seems far from plain sailing. As the pandemic recedes, small charities are facing an intensifying cost-of-living crisis. Increasing demand and rising costs at a time when people have less money to donate is creating a perfect storm for the sector.

 

A financial squeeze on many fronts

CAF first highlighted the overall decline in the number of people giving in 2016, a trend that has continued since. This briefly stalled during the initial stages of the pandemic, but as our upcoming UK Giving report will show, this downward trend has returned. Over the last few months, the rising cost of living has also prompted around one in seven (13%) to say they plan to cut back on charity donations to help manage their bills.

Our research also revealed that two thirds (59%) of charity leaders are concerned about people having less money to donate to their cause, leading to a third (35%) saying they are worried about their organisation struggling to survive.

But it’s not just fundraising that’s being affected, there’s the increased cost of utilities, equipment and supplies for charities, and of course pressure for higher wages to attract and keep skilled people.

One care home operator recently stressed to me that a key pinch point for them was retaining staff. Many care employees are paid around the minimum wage and are facing the choice of continuing in their chosen field or looking for more financially rewarding jobs.

Then of course there is the effect on the people who rely on charity services. Nearly nine in ten charities (86%) are worried about the impact of rising living costs on their clients, leading 71% of charity leaders to worry about managing an increase in demand for their services.

 

How can small charities weather the storm?

Small charities need to adapt to life post-pandemic in an increasingly challenging landscape. They’ll have to find even more efficiencies in their operating models, invest in income generation and look for ways to make their existing resources go even further.

Some key things for charities to consider include:

Prioritise financial resilience

Financial resilience remains a priority, including looking at ways to diversify and increase funding sources. Can you also make any savings on your bills or overheads? Energy saving tips we’re all using at home to manage our bills could also help your charity.

Unfortunately, the signs are that this crisis is set to worsen, before it gets better, so make every effort to understand your financial position and build up any reserves you can, which clearly may have been depleted during the pandemic. We have resources on financial resilience on our Charity Adaptability hub together with more information you may find useful.

Prevent fraud and cyber risk

Cybercrime remains a major risk to charities and can be extremely costly for organisations falling victim. Be aware of the risks and take proactive measures to prevent fraud to protect your organisation’s money and reputation. Our security centre has some tips on staying safe and secure.

Connect with your donors

Now is the time to make every effort to remind your donors of the difference their money can make. Let them know what support you need and the best ways they can provide it.

As always, remind your regular donors to include Gift Aid to top up their donations. They may also be able to take advantage of payroll giving services, such as Give As You Earn, which offers tax benefits for them and often their employer will match donations.

Ask your larger donors, including businesses, to give unrestricted funding to help with operational costs or resilience building. After all, you know best where funding needs to be deployed, not your donors. Could those already providing grants consider a top up to keep up with inflation?

Although it feels like a particularly challenging time for the sector, and particularly for small organisations, charities can be particularly resilient and determined. At CAF, we want to continue to support the vital work of small charities, which form such an important lifeline to so many.

 

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