Charities facing a funding crisis as financial worries deepen

For while many companies have faced insurmountable problems, the same issues have also had a devastating effect on the charity sector.

And in the wake of the lockdown and the cost of living crisis, statistics show there has been an increase in the number of charities either entering into a formal insolvency process or simply ceasing to operate.

Deborah Lockwood, from the Sheffield office of insolvency and business turnaround specialist Leonard Curtis, pointed out that small and medium-sized charities were disproportionately affected because they often lacked the financial reserves of larger charities and were therefore left more vulnerable.

“The economic downturn has resulted in lower disposable income for many individuals and families,” she explained.

“Charitable donations have seen a significant drop and many smaller charities that rely on a high volume of small regular donations to assist with cashflow are suffering as a result.”

Many charities, Deborah added, rely on government grants and support to keep their doors open but with austerity measures, there have been some cuts and budget reallocations which have seen funds moved away from charities which were previously awarded annual grants.

Nor does the recent change of government seem to offer much comfort for charities facing an uncertain future.

“The change of government and the current political landscape may mean that organisations that hold charitable status may see their funding impacted,” Deborah said.

“Charities are less capable of being able to pivot and can find it difficult to fill gaps in the cashflow.”

At the same time funding is in decline, of course, while the demand for charitable services has increased, particularly as a result of the cost of living crisis.

“More people are relying on food banks, mental health support and housing assistance provided by the charities that are experiencing reduced income to meet this demand,” Deborah said.

She added, though, that there were things charities could do to combat the effects of hard times.

“Some charities have formed strategic alliances with others to try to reduce overheads and general operation costs,” she said.

“Where two small charities may not be sustainable, the synergy from joining forces could increase performance and increase cashflow.

“It could be woking together on an informal basis or a full legal merger, moving the two entities into one, either a transfer from one charity to another, or both merging into a new entity.”

Other suggestions for a more secure future include embracing digital tools and platforms to cut costs and also reach a wider audience, moving away from the traditional blueprint for fundraising.

It might also be a good time to attract new trustees with fresh ideas on weathering a financial storm.

“Through diversification, strategic alliances and the use of technology, there is no reason why charities cannot be as strong as ever, providing vital services when they are most needed,” said Deborah.

“And just as in the corporate world, if a charity is facing a crisis the best advice has to be to seek professional support as quickly as possible, rather than waiting for the silver lining that might take too long to materialise.”