What size should your charity be?

Deciding how far to grow - or even shrink - can be very difficult for charities. Liam Kay examines five important factors to consider when deciding on a financial strategy

Determining the ideal size of your organisation can be tricky. It can be difficult to resist the urge to help as many beneficiaries as possible, and there’s a natural temptation to see continuous year-on-year financial growth as a positive thing.

But there are countless cautionary tales of charities that have stretched themselves too far, leading to their demise. Take the example of Kids Company, where the good intentions of the trustees and staff were clear, but the charity’s strategy was unable to keep the charity on a stable financial footing as its mission grew.

There is always benefit in taking a good hard look at how efficiently activities are carried out

Pesh Framjee, head of not-for-profits, Crowe

At the other end of the scale, there is Scope. Last year, the disability charity sold all its care homes and day services to a private provider, transferring 2,000 staff and getting rid of half of its business. The aim, according to Mark Atkinson, chief executive of Scope, was to bring the charity’s focus back to what it saw as its core mission: advocacy, information and support for disabled people.

So how big is too big? And could shrinking in size actually double your impact? Here are five important factors to consider when deciding the size of your charity.

1 Understand your organisation’s impact and purpose

Nick Sladden, head of charities and independent schools at the accountancy firm RSM UK, says charities need to properly understand the difference they make when formulating growth strategies. For example, some charities might find that remaining small is better for the organisation’s work, especially if it is tackling a niche or local issue.

"It comes back to the fundamental question of how the charity is having the biggest impact on its beneficiaries and how that is defined," he says. "Just getting bigger and bigger does not mean getting better and better for the beneficiaries."

pesh framjee

Pesh Framjee (left), head of not-for-profits at the accountancy practice Crowe, says charities should consider their own strengths and weaknesses, and how they can sustain performance within existing and future levels of resources.

"Most charities have plenty of information about inputs but very little about outputs and, more importantly, outcomes," he says. "It is very important for charities to concentrate more on performance information. Without some form of performance criteria and monitoring it is difficult to establish and evaluate the effectiveness of alternative strategies and the use of the organisation’s resources."

2 Have an effective reserves policy

Sladden says that having a good reserves policy is crucial to an organisation’s strategic plan, especially if excess reserves can be used to provide a one-off investment that can generate long-term, sustainable growth. He also encourages boards to take a longer-term view of strategy to see how reserves could be used to generate growth, and ensure they have the time available for discussing the charity’s future.

"Many boards follow a fairly predictable seasonal pattern to how they run their charities," he says. "It is taking time outside that cycle and thinking ‘what is our ten-year objective or our 20-year goal?’"

3 Are you working efficiently?

Framjee says that many restructures are based on an acknowledgement that the way the charity is working is inefficient or could be made more productive. He suggests that charities can save costs through a detailed understanding of their activities, related costs and income streams.

"The thinking now might be that there is little surplus fat, but it is surprising how easily complexities begin to flourish in organisational processes and structures," he says. "There is always benefit in taking a good hard look at how efficiently activities are carried out and services delivered."

Framjee says charities should realise that wanting to grow and achieving sustainable growth are not necessarily the same thing. "Capacity should be increased to meet need, but where there is a realistic assessment of the resources necessary to deliver capacity," he says. "Growth also usually leads to change. It is in this context that strategic and financial controls are important."

4 Remember your back-office costs

kate sayer

Kate Saye (right), consultant at Sayer Vincent, says charities need to recognise that growth will also require expanding IT, HR and finance to run organisations effectively. This means getting the right balance between overheads and spending on charitable activity.

"One of the things we have seen happen is organisations focusing a bit too much on the turnover figure," says Sayer. "That means there’s a danger they are not necessarily thinking enough about whether it is producing enough income to cover both the direct costs and the overheads."

She says that digital working can cut overheads and even expand a charity’s reach, supporting more beneficiaries at a lower cost.

5 Consider partnerships and mergers

Sayer says that sometimes a merger or partnership is the best way of addressing a societal problem, and charities should therefore "think outside the box a bit more".

She argues that charities can be too focused on their own growth as organisations, and counsels them to take a step back and see if that pursuit of growth is actually the best way of achieving the charitable mission. "You should be defining success by how much you have helped beneficiaries," Sayer says. "It shouldn’t matter who is doing that."

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