Plan to cut costs now - and don't rely on social investment as a panacea

Charities should not put off hard decisions, says John Kingston of CAF Venturesome

John Kingston
John Kingston

Times have been uncertain for charities for two years now. October 2008 was the peak of the financial crisis. In 2009, the recession began.

This year, post-election cuts are in the forefront of our minds. Both this year and the next will be key for the sector as the wave builds momentum and, for many people, the crisis becomes a personal reality.

Many big charities with adequate reserves and contingency plans have started to reduce costs, trying to limit the amount of pain that might hit their organisation, staff and beneficiaries. For smaller charities and social enterprises, it has been far more difficult; there is little resilience and low levels of reserves. Even a small shockwave can tip them into insolvency. I'm seeing and hearing of more charities in serious financial difficulty than before.

So what can be done? Charities need to plan now and start making difficult cost-cutting decisions - even if it is really painful stuff. Some smaller charities could seek shelter from the storm by merging to protect their beneficiaries and the work they do.

But it's not only about the sector finding solutions - the government and local councils also need to abide by existing contracts with charities and social enterprises.

A decision at the last minute to withdraw from an existing contract could tip a small charity, doing great work, into insolvency. Commissioners need to ensure they are not putting off signing new contracts. Such delays can cause small charities to bleed slowly to death.

Social investment is seen by some as the panacea to these problems, but it's far too simplistic to state that.

Social investment is part of the array of funding solutions and can go some way towards helping organisations to grow and expand. It can offer investment where mainstream lenders will not go and help charities and social enterprises to build their impact.

What it should not do is help the charity sector to run up debts as it tries to avoid the financial realities that it is currently experiencing. What it can't do is offer a soft answer to charities that might be facing funding cuts from local authorities or a fall in fundraising income.

What it can do is to underpin a charity seeking to rebalance its expenditure with its income.

The challenge to commissioners, whether they are local or national, is to resolve the uncertainty as soon as possible - it's a killer for charities that are doing vital work helping people through these financially difficult times.

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