At the Charity Finance Group's Large Charities Conference last week, the question posed was "are charities becoming irrelevant?"
The traditional perspective is that a charity model typically relies on grants or donations and it isn’t about trading. It’s expected that money should be invested in providing free services rather than in core costs. There is also a perception that charities are operationally inefficient and unsustainable because they are not business-like; yet if they start to behave like businesses, some wonder if they are still charitable.
To survive and remain relevant in today's climate, charities have to address four major challenges.
The first is a lack of transparency and trust. The future charity will ensure it has a two-way communication strategy and tools in place to converse with all stakeholders to share information, listen to feedback, provide updates and communicate impact. This will build transparent and trusting relationships. Emphasis is being placed on building local connections, so community charities might want to introduce tailored communication and funding opportunities for their local communities. They should also raise awareness about the skilled business resource and expertise they have in-house to manage and deliver their services, which will demonstrate credibility and professionalism to investors and supporters.
The second challenge is the amount of funding being spent on core costs rather than delivery. The future charity will need to review and adopt lean processes – creating more value through fewer resources – and improve its efficiency through improving IT and digital infrastructure to reduce administration costs.
It will also look at ways to increase unrestricted funding to cover core operational costs by introducing commercial trading arms and complementary legal structures, adopting a social enterprise model. This could be by acquiring an already established, profitable business, taking on a franchise or launching a new business brand with the intention of generating surplus profit to reinvest in social aims.
The third challenge is about financial investment for diversification. The future charity will need to explore alternative social investment options beyond standard donations and grants, such as loans, equity, community shares and crowdfunding, to invest in the delivery of services, commercial trading activities or resources that enable them to achieve sustainability. Unrestricted income allows for more diverse and innovative approaches to income generation. Diversification also gives your core stakeholders different ways to support you financially through sales, such as product purchase.
The final challenge is to maintain a competitive edge. The future charity needs to compete against mainstream businesses and other non-profits, so a good blend of charitable and business skills are key, as is embracing commercial and digital opportunities. It needs to shout about its distinctive impact and wider social responsibility, and to demonstrate and raise awareness that its senior management team comprises experienced business professionals. It must stand out.
In summary, charities are being pressurised to become more business-like, which could be seen predominantly as a shift towards the social enterprise model. The risk is that this approach will be met with criticism by the public as some perceive that this model could be a distraction from the charity’s core service delivery, and that it’s too commercially minded and too risky. It would of course require a different culture and new resources. Is there a choice? What are the other options on the table in this changing market environment? Those were the key question being debated at the conference.