Analysis: How charities with low reserves are coping with the Covid-19 pandemic

With fundraising income wiped out, many charities are falling back on their reserves. But with only a quarter estimated to have reserves large enough to last three months, how are organisations coping? Liam Kay reports

Oxfam: has closed its shops, but has only small reserves
Oxfam: has closed its shops, but has only small reserves

The onset of the coronavirus pandemic has left vast swathes of the economy in serious financial trouble. And charities are no exception: the National Council for Voluntary Organisations estimates that a minimum of £4.3bn in income has been lost because of Covid-19, and some suggest that this figure could be the tip of the iceberg when it comes to lost funding for the sector.

The nature of the crisis means that charities are also experiencing increased demand for their services as communities self-isolate and vulnerable people need food and support. With income wiped out, many charities are falling back on reserves.

Eddy Hogg, lecturer in social policy at the University of Kent, says that now is the time for charities to deploy their reserves if they have them. “Reserves are for a rainy day, and this is the rainiest of rainy days,” he says.

So if ever reserves were to be used, it is now. But, as Karl Wilding, chief executive of the NCVO, told MPs in a virtual select committee hearing last week, only a quarter of charities have reserves sufficient for three months, let alone the possible six months in which social distancing measures might need to be in place.

Hogg says: “We don’t know how long this will last, and it is pie in the sky to expect that charities have the sort of reserves they need to see them through weeks, if not months, of this.”

So what do you do if you don’t have sufficient reserves? Third Sector studied the accounts of the top 155 charities according to our Charity Brand Index and identified a number of charities with reserves that equal 10 per cent or less of their annual incomes.

One of these is Oxfam. The charity has an annual income of £434.1m but reserves of only £25m. Last month, as social distancing measures were introduced, Oxfam closed its chain of 600 shops, at a cost of £1.4m a month. The charity has decided to furlough many staff so that the government funds 80 per cent of the affected employees’ wages up to a maximum of £2,500 a month.

A statement from Oxfam said it was “working hard to ensure that as much of our reduced income as possible is available for our work and to raise additional funds so that we have the resources available to protect the communities we work with from Covid-19”.

But what do you do when your entire business model breaks down overnight? Many charities – from the Royal Opera House to small local museums, and everything in between – have been ordered to close by the government, with no indication of when it will be safe to reopen and generate income again. Many of these charities are effectively mothballed for the foreseeable future.

One example is the Zoological Society of London, which runs London Zoo. The zoo is in a difficult situation in which no visitors can attend and therefore provide income, but its 18,000 animals still need to be cared for, food needs to be bought and staff must be kept on to look after them. It has an annual income of £70.7m, but free reserves are only £5.3m.

Faced with such a substantial loss of funding, ZSL has taken an approach adopted by many charities and launched an emergency appeal for donations.

A statement from the charity says: “Our immediate priorities are to identify ways to reduce expenditure by pausing planned works and appealing to our visitors, members and the wider public to help support us in these unprecedented circumstances.

“Our leadership team is working extremely hard to identify potential savings and understand how the financial support available from the government applies to us. But with our main sources of income being from our world class zoos, closing these to visitors has a massive, immediate impact.”

Hogg says that charities can still rely on “committed donors who have a strong and ongoing investment in the cause, to whom charities can continue to show love”. He says that charities need to reach out to donors at this moment, and try to harness their support. They can also seek other sources for additional funding, such as grants. But times are likely to be tough as the Covid-19 virus shows no sign of abating.

Macmillan Cancer Support, which has an annual income of £235.7m and free reserves of just £12m, is facing a significant rise in demand as a result of Covid-19, with many cancer patients concerned about the virus, which is particularly dangerous for people with the illness. Simultaneously, income has fallen significantly.

Lynda Thomas, chief executive of Macmillan Cancer Support, says: “The Covid-19 pandemic is already having a devastating impact on charity resources and we expect a sharp fall in our income in the coming months. We have had to pause our face-to-face fundraising events and activities, yet we urgently need funds to continue to provide our vital support.”

The only answer in her view is for the sector to work together to help organisations weather the coronavirus storm.

“The charity sector needs to pull together,” Thomas says, “working with bodies such as the Institute of Fundraising and Acevo to share learnings and mitigate the impact, particularly on smaller charities.”

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