Stella Smith: Don't wait for a scare to review your business model

Charities tend to ignore the warning signs of a failing business until it is too late

Stella Smith
Stella Smith

There’s nothing like a health scare to focus the mind on what really matters. In retrospect you can often see that there were warning signs, but it’s not until the shock of the emergency hits that we actually do something about it.  

In the same way as many of us don’t really look after ourselves until we’ve had a major health scare, charities rarely review their business models unless they see a serious threat to the organisation’s health.

We might hear rumours of discontented volunteers or suspect inappropriate behaviour or problems in service delivery, but as long as the money is coming in and the organisation can survive, we carry on as usual.   

As a sector, we are far too slow to pick up on warning signs. We don’t address problems until it looks like the money might run out or the organisation might go bust. 

Of course, by then it's already too late and we’re forced into crisis management. Our response is rushed, poorly thought through and a shock to staff who are used to working in a stable environment.  

This slowness to react is a real problem for large charities, where there can be a very long time lag between the warning signs appearing, the effect on the finances and a subsequent plan of action.

In fact, big charities can be dysfunctional for years but, because they have large amounts of unrestricted legacy income, the balance sheet looks healthy and there’s no motivation to change.    

So when Third Sector reports that stalling donations are being masked by a rise in legacy income, we should take note. Large legacy donations lull us into a false sense of security. They create an environment where we can focus on our everyday work and take away the need to challenge ourselves and really examine what we are doing. 

Too many big charities continue doing activities or providing services not because they have evidence that the work is effective or needed, but because they have the funding. While welcoming the rise in legacy income, we should not ignore the reasons for the fall in donations. This is likely to be an important indicator of a future problem. 

Inspiring energy and enthusiasm for fundamental change is very difficult unless people really think jobs are at risk, but we have to find a way to do it. Of course, we don’t want to create change and disruption for the sake of it, but at the same time we can’t keep things as they are because we have the funding and it would be inconvenient to change.    

We need to get better at instigating change when there is cause for concern, whether those indicators are financial or non-financial. We shouldn’t be waiting for a serious health scare, a tabloid scandal or a financial crisis but view change as an everyday and inevitable part of running an effective organisation.

Regular changes through reviews and adjustments will make sure we are really making the most of every penny. It also helps ensure we are delivering what is really needed and are in the in the best possible shape to make the most of whatever comes our way.  

Stella Smith is a consultant and facilitator

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