Mark Greer

Mark Greer

Managing Director, Giving and Impact

What does the Charity Resilience Index mean for funders? 

“We cannot continue for long under our present circumstances. There is nothing left to cut.” This is what a manager at a children’s nursery charity told us recently as part of our research into the cost-of-living crisis for the Charity Resilience Index. With no way to pass on costs, charities are facing a particular set of financial pressures.

An increasing number of people are relying on the essential services that charities offer. Whether that’s to help with food for their family, somewhere warm to stay or help with elderly relatives. But organisations are meeting this growing demand while facing their own financial challenges, with inflation increasing their costs and donations falling. Our research shows that about half are worried about their organisation’s survival as a result. So beyond continuing their existing support, how can funders help?

1. Prioritise unrestricted funding

Core costs for charities are increasing- they are paying more to heat their properties, put fuel in cars to get to visits and they are under pressure to increase pay for staff that they cannot afford. Our research shows around half (50%) are using their reserves to meet these increased operational costs. In particular, we know that charities are already struggling to cover their energy costs and many will be negatively impacted when Government help decreases in the spring. This will particularly affect charities with higher energy usage, such as care homes.

Charities told us about the pressures their employees and volunteers are under, and how they’re struggling to retain staff who are leaving for better-paid jobs. A women’s charity who took part in our research said that their team is frazzled and stretched, and they cannot compete with other sectors.

These findings emphasise the importance of unrestricted funding, which CAF strongly advocates for. Charities are best placed to decide how to use funds, and giving in an unrestricted way allows them flexibility to allocate the funds where they’re most needed, which may be on those all-important core costs to ensure their charity’s survival.

Unrestricted funding can also be used to build their resilience, especially after many have seen three years of very high demand. Resilience funding can give charities the time and space to identify areas where they need to strengthen their organisation. Many need to invest in their people, processes and systems but lack the funds to do so. Now is the time to prioritise unrestricted donations or loosen some of your usual requirements for grants.

2. Help charities to plan

The research shows that under a third of charities feel that their current funding is secure. With rising costs for their own energy and fuel bills, a fall in household donations shown in our UK Giving research only adds to financial concerns for many charities and social businesses. We know that many charities are unsure how they will survive from one month to the next. One of our donors recently helped a charity who contacted them for support, just to cover their payroll for the end of the month.

As funders, we should give as much confidence as we can to the charities we work with. Therefore, multi-year unrestricted funding should be far more common than it is currently. This would help charities to become more resilient and plan for the future with confidence. It also helps to strengthen the relationship between grant-makers and the people and communities we want to help.

3. Consider the effects of inflation

Unlike businesses, charities cannot pass their increased prices on to customers. Many are relying on their reserves to pay for the higher overheads for energy, rent and supplies, or making cuts to what they provide. For instance, one community food bank told us: “We are finding the cost of food is increasing by the week. A loaf of bread was 60p, now it’s 90p – when buying 200 it’s a lot of money. We are now only giving families three days’ worth of food instead of seven.”

However, only a third (35%) of small charities and half of medium to large charities have asked or will ask their funders for help with costs. It is therefore helpful for donors to consider increasing grants to allow for these pressures.

4. Target needs and cause areas

The challenges are particularly acute for charities who offer care and support services. According to our research, seven in ten (71%) charities providing these vital services for disabled people, children or older people say they are worried about their future survival. Charities working for the prevention or relief of poverty are particularly likely to report an increase in demand for services (87% compared to a sector average of 58%). However, faith-based charities and arts, culture and heritage charities are among the least likely to report an increase.

It may be time to reassess your giving strategy to ensure your funds are going where they’re needed most. Think about how you could have the biggest impact with your donations and objectively assess which issues may be overlooked or underfunded. Could you support causes such as homelessness, food poverty, mental health and debt support, which may be particularly stretched at this time?

5. Be flexible as funders

If charities are going to survive and thrive, they need more financial support. This could be in the form of grants or social investment loans and blended finance packages (a mix of grant and loan money). These provide a source of affordable, flexible finance to help organisations continue their charitable activities, stabilise and plan for future growth.

The research indicates that the impact on charities has been uneven across the country, with charities based in the North of England more vulnerable than elsewhere. Demand has increased for nearly seven in ten (67%) charities in the North, and two-fifths (40%) say this has increased significantly (compared to 55% and 24% across the rest of England). Charities in the North are also much more likely to have relied on their reserves to meet running costs than those based elsewhere in England (63% compared to 50%).

Donors and businesses can take part in place-based giving initiatives to address some of these regional disparities, which can also increase investment in local communities. 

While the sector faces ever-greater difficulties, our experience has demonstrated that charities can be resilient with the right support. For funders, now is the time to ensure charities are supported in the most effective ways possible, so that ultimately donations go further for the people and communities they serve.