Smaller charities are being disproportionately affected by funding cuts, according to the Scottish Council for Voluntary Organisations.
The SCVO’s Scottish Third Sector Statistics 2012, published today, is based on weighted data taken from the accounts of about 1,000 charities, housing associations and credit unions.
It says that the majority of smaller charities are spending more than they generate.
"It is to be expected that in harder economic times many groups dip into the assets they have set aside, but any continuing overspend at this level will have implications for the sector’s sustainability," the report says.
It adds that the "major deficits" of smaller charities are being masked by the modest return to income growth of larger charities and housing associations. But larger charities have also lost contracts and some big trusts earned less interest on their investments, it says.
According to the report, the sector’s income in Scotland was £4.5bn in 2011, up from £4.4bn in 2010. Expenditure was £4.3bn in 2011, compared with £4.2bn in the previous year.
The report says that the sector is employing more people, but there has been a 10 per cent fall in staff hours – from 93,000 full-time-equivalent employees in 2009 to 83,350 in 2011.
Staff numbers increased to 138,000 posts in 2011 from 136,500 in 2010, but there was an increase in part-time, short-term and lower-paid employment, the report says.
Martin Sime, chief executive of the SCVO, said: "As income falls short of expenditure, particularly for smaller charities, they are being forced to use what assets and reserves they have left to keep their doors open for as long as possible.
"With limited reserves, which many already dipped into last year, charities are running out of ways to compensate for the funding drain.
"They are working hard to maintain the high-quality services they provide to communities across Scotland and keep their staff.
"With ever-growing demand set to skyrocket as the UK welfare cuts kick in, third sector organisations are facing an impossible conundrum. Something will have to give to secure a sustainable future for the sector."