More than half of charities would be unable to increase the level of the reserves they hold if they wanted to, according to new research.
The latest Managing in the New Normal report, which is produced annually by the Charity Finance Group, the Institute of Fundraising and the professional services firm PwC, says the situation creates "an impression of a sector which is still very fragile".
The report, based on a survey of 307 charities carried out between December and January and published today, rounds up responses on a wide range of subjects, from finance to fundraising activities.
It says that despite concerns about charities that operate on low levels of reserves in the wake of the collapse of Kids Company, which closed abruptly last summer, 54 per cent of respondents said they did not have the financial resources to grow their reserves if they chose to do so.
"This means that for a significant number of organisations increased costs, increased demand or reduced funding (or a combination of the three) means that there is no possibility of increasing reserves in the short term," the report says.
"This creates an impression of a sector which is still very fragile, although the financial situation has improved compared with the picture a few years ago."
The report says 53 per cent of charities said they had reviewed their reserves policies in the past year.
This had led to 27 per cent of respondents increasing their reserves a little and 4 per cent doing so substantially, it says. A total of 23 per cent of respondents had reduced the level of their reserves, with the remainder saying they had made no change.
The report indicates a significant increase in concerns about press and public scrutiny of fundraising practice.
Asked to select all the answers that applied from a list of fundraising challenges for the future, 83 per cent chose "increased press and public scrutiny into fundraising practice and charities generally" as a concern for the sector as a whole.
A comparable question in last year’s survey was selected by 17 per cent of respondents, a PwC spokeswoman said.
The survey, which is in its ninth year, found that 40 per cent of charities said they were reviewing consent statements on donation forms, and 39 per cent said they were improving internal compliance.
Thirty-eight per cent of respondents said they were improving ways that supporters could manage their communication preferences and 37 per cent said they were planning to increase training for fundraisers.
The survey found that morale had fallen slightly, with 58 per cent of respondents saying their staff were energised or optimistic, a fall of three percentage points on last year’s figure.
Respondents were found to be less optimistic about the future of their organisations: 64 per cent said they were feeling optimistic, compared with 74 per cent last year.
The report says 85 per cent of respondents said they did not have the skills or capacity to access or use social investment.
Caron Bradshaw, chief executive of the CFG, said in a statement: "Charities are facing a number of challenges, both financial and reputational, but this survey is encouraging because it shows charities are taking seriously the need to meet these challenges.
"We need to give charities the time and space to adapt and have confidence in the ability of charities to grapple with them."