Is your charity feeling the squeeze?
Across the UK, people are feeling the pinch on their finances with inflation at its highest rate for 30 years. Inflation rose to 9% in the year to April 2022 as a direct result of supply chain issues following both Brexit and the COVID-19 pandemic. This isn’t expected to go away anytime soon, with the crisis in Ukraine causing further hikes to inflation, with it expected to increase to 10% in the last quarter of this year and remain high (at least 4%) until 2024.
In both our personal and our working lives conversation about rising costs and reduced disposable income is becoming normal with us all asking the same questions; How can we earn more money? How can we reduce our expenditure? How can we best invest the money we do have?
For charities in particular this is a big concern in a market where funding has already been squeezed. Funding is drying up following the costs that the pandemic created for local authorities. Charities that had been eligible for so much additional emergency funding during the pandemic are now paying price, as local authorities ask charities to do more for less. There is no quick easy answer, but the key is to start planning ahead. Now is the time to re-look at budgets and be realistic on the impacts of increasing costs and drops in income.
How can we increase our incoming resources?
As disposable income drops, struggling households are expected to reduce or even stop their charitable donations. However during the pandemic there was a trend of fewer donors but higher individual donations being given. In particular a small group of predominantly older supporters were giving more, and this trend is likely to continue. Now is the time to reconnect with supporters paying donations by direct debit and seeing whether these donations can be increased to help support rising costs. Many direct debit donations have been set up for years, and in today’s world that £10 monthly donation simply doesn’t go as far. Ensuring that these donations are gift aided could also increase incoming resources for charities, as it is reported that more than £500million could have been claimed via gift aid but isn’t every year.
As a positive, since the pandemic trust and visibility in charities has improved from a place where charities just weren’t getting the best press. People give to people and forming a connection with your audience is proven to be hugely important for the success of gaining vital support. That could be testimonials from beneficiaries on your social media channels or that personal touch from the CEO at fundraising events.
Digitalisation has been a great success for charities in the pandemic and this should continue to benefit charities going forward. There is now very much a place for both online and in person fundraising. We have all missed being able to attend events with our families and see our little ones enjoy a whole host of activities, but there continues to be a need for online events for those who are less mobile or remain cautious about in person events. These sorts of events can also be very cost effective to hold, if done properly.
There are also a lot of corporate donations and volunteers time up for grabs. A lot of businesses now offer their staff a day’s paid volunteering as part of their CSR campaigns. So have you got a project or fundraising event coming up? Maybe consider and plan ahead for what support you could get from outside your organisation. Similarly as people cut back on their ability to donate money, reach out and see what skills you can receive via donation instead.
Lastly a lot of charities rely on grant income. There are several grant giving bodies such as the Big Lottery Fund who require grant applications to include a cost breakdown for the project being applied for. With rising costs, be sure to include these increases within your applications, it is no secret that the country is facing inflation. If charities don’t look at full cost recovery when submitting bids for grants, they run the risk of new projects running at a loss and then having to use core funds to cover this, which may already be stretched. Grant giving bodies will want to know their money is going to charities that are well managed, so be sure to include narrative around the charities plans to tackle the inflationary pressures rather than ignore them.
How can we reduce expenditure?
For those charities that haven’t already, the first step to reducing expenditure is to renew those old supplier agreements. Make sure you have looked around and found the best deals on the market. As we do with our own household bills, having a look around every year can save us some extra pennies. As accountants, we are regularly involved in competitive tenders for our services, but wonder how many other suppliers to charities go through the same process, to ensure that charities are getting the best value for money.
Electricity… so turning off light switches when not in use is an obvious one, but these little things do add up! Or maybe now is the time to think about office space. Do you have excess space which you are keeping warm in those winter months for no reason? Could these spaces be sub-let or rented out?
There is also a massive reward to be had from sharing resources with other charities. Perhaps you want to attend a large profile event but the pitch costs or event equipment costs are too high? These could potentially be shared. Maybe you want to tender for new grants but haven’t got the resources to compete, could you team up with a similar local charity and work together to deliver?
Let’s talk staff. Staff are the heart to any organisation, the right team can be the biggest asset. Now, in a time where inflationary pressures are causing individual’s priorities to change, even those who are happy in their jobs may be looking elsewhere for higher salaries to support their households. Now I am not saying make your charity bankrupt to pay people what they want to stay, but early negotiations and not just ignoring the need for inflationary pay increases may avoid losing them. Hybrid working, allowing staff to work from the office and from home or flexible hours can also be an attractive benefit to help retain staff if this is possible within their job requirements.
Making your money work as hard you are
Trustees need to ensure that all available cash reserves are working hard for their charity. Investing decisions start with establishing what your charities short term and long term requirements are, and budgeting ahead for future cashflows. Once you have established a minimum amount that needs to be immediately available at any given time, covering both day to day running costs plus a bit of a buffer, any remaining cash can work harder for you in either short term or longer term investments. If you need reasonably quick access to your invested funds there are short term deposits available from as little as a few days to a few years.
If you have substantial cash reserves which you don’t plan to use in the immediate future it is worth considering contacting an investment broker for advice. An investment broker can tailor an investment portfolio for you to match your attitude to risk and whether you are more concerned with immediate returns on investment via dividends, or longer term capital returns. There is always risk involved with investment portfolios, and there is expected to be fluctuations in values throughout the time the cash is invested, which means they are not necessarily suitable for all charities.
There is no easy way out from the economic pressures that charities are facing, but the important thing for Trustees to do now, if they aren’t already, is to start planning ahead. Don’t bury your head in the sand and ignore the crisis, but come back fighting and proving what the charity sector is made of. Having learnt so many vital lessons during the pandemic, now is the time to put those lessons to the test and show how adaptable and passionate the sector is.
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