David Stead: Charities need to get the right funding mix to build their resilience

04 Oct 2017 Expert insight

If charities are to fulfil their ambitions and remain sustainable it is important for them to diversify their funding sources by considering all options available, says David Stead from Charities Aid Foundation.

Funding is the biggest issue for charities especially those of small to medium size. Government financing is in shorter supply, contracts are difficult to win, and traditional donations are uncertain. Less income means charities have to look for immediate reductions in core costs. They may recruit “fundraising trustees” in the hope of new funds, or keep asking the same pool of donors or grant-making organisations but is that sustainable?

This damaging cycle of income and cost reduction could be smoothed over with a diversified funding approach in the way entrepreneurs explore new sources of finance. This takes time but investigating these sources is vital to address the growing gap between rising demand for a charity’s services and their increasingly stretched income.

New funding sources include: crowd-funding communities via platforms, social investment, charity bank loans, or grant-making bodies funding core costs and sustainability.  

In addition, businesses are looking to develop effective multi-year partnerships with charities in their longer-term corporate social responsibility strategies. Company foundations are also being formed to create the headspace, skills and structures required to focus on social returns before profit. So identifying corporates with  mutual interests may reap benefits over time.  

Traditional lending or unsecured repayable finance from the likes of CAF  Venturesome finances diverse situations including bridging loans (for example to plug the gap ahead of a grant being available), growth capital to build core operations, match funding, or helping out during a cashflow problem. Many organisations provide charities with advice on the options, risks and benefits, often pro-bono.

Private donors

Private donors are also important. Rather than being the big cheque writers at fundraising events, many see themselves as entrepreneurial investors seeking exciting opportunities to make a real difference; some look for financial return or at least capital repayment. They want to understand the difference their funds would make to the organisation and its beneficiaries. A strong multiplier effect and greater “bang for the buck” are inviting. For example, using their own funding to generate additional finance from other donors, improve a charity’s efficiency or core capabilities, or develop better impact reporting through stories and data. Identifying and nurturing these relationships takes time, but is extremely worthwhile!

New funding doesn’t have to come from external sources. Charities have a range of services, many loyal customers, deep knowledge and many other assets which  could enhance earned income. Matching a charity’s strengths to opportunities in the sector could uncover untapped revenue streams.

Charities should invest in longer-term financial strategy and business planning. Time is always scarce but an inadequate funding mix, short-term budgeting and one-off fundraising can eat up even more time. All stakeholders want high impact but how will that impact be financed over time? What is the optimal funding mix both now and in the future and what are the right sources for this mix?

Charities need to investigate the full menu of financing options available to diversify income sources, reduce risk and improve resilience.

David Stead is the executive director of philanthropy & development at Charities Aid Foundation. 

Civil Society wishes to thank Charities Aid Foundation for its support with this article.

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