Charities operating within sectors covering the areas of care provision, social housing and community services are all dealing with multiple financial challenges.
Some are linked with recent government budgets and statements; some are connected to the pandemic fallout; and many are facing wider challenges.
For some commercial providers, the consequences of these challenges are closely tied to investment, resilience and owners’ long-term objectives. If a commercial provider were not to achieve its investment objectives, it would be forced to make dramatic decisions.
For the NHS and local authorities delivering these services directly, the consequences are largely shaped by available budgets and priorities.
There is a limited budget which is applied based on priorities. The expectation is to operate within their means and the only lever they have is their actual spending behaviour. While quality, reputation and other metrics relevant to charities are important, they often take a secondary role to financial considerations.
For charities, the implications are more acute. Funding pressures on the NHS and local authorities cascade down to providers, often capping the amount of income available to deliver services.
The government policies and budgets are also having a significant impact on the cost base, thus squeezing any margins achieved. The ability to charge higher private fees to offset rising costs is somewhat limited, and fundraising becomes more challenging when there is a public expectation that these services should be the responsibility of the government.
Financial forecasting
I have seen significant reactions from charities in the sector in terms of financial forecasting of the implications of inflation, increased use of agency staff, national insurance and minimum wage increases, among other challenges.
Strong governance in setting budgets and managing reserves and liquidity has also helped charities to remain financially resilient. However, in many cases, this amounts to short-term firefighting, with longer-term uncertainty lingering in the minds of many.
It is clear that these financial challenges are making charities think much more broadly than just to the next year’s annual budget. Where there are longer-term structural financial issues but a solid brand, there is an opportunity for collaboration and in some cases merger.
In other cases, the unfortunate reality is that some charities have eroded all of their reserves in the aftermath of the pandemic and now face very limited options.
This is a serious situation but closing the organisation should be a very last resort; there is still work to be done in communicating with stakeholders of the specific challenges facing your charity (as opposed to challenges faced by the sector as a whole).
There is no easy, quick fix, and the sector has been very good at reporting the wider impact of tax and other pronouncements to the government. What could be improved is more focused and personalised communication surrounding the impact of these challenges, whether through the statutory accounts, impact reports or website updates.
Examples include:
- The full cost of service provision and the percentage of this cost covered by local authority and private fees.
- The role of fundraising on meeting the shortfall.
- The long-term infrastructure costs that if not met impact the ability to meet Care Quality Commission and other required standards.
- The cost of operational challenges such as a shortage of skilled staff; shortage of quality contractors and increased regulations.
Being more explicit and transparent about the challenges can motivate commissioners to engage; it can help the sector with collective messaging and lobbying efforts, further helping to build broader public support.
It can also help with the fundraising ask, particularly in showing that all income from commissioners is spent on direct provision and so capital improvements need to be financed from fundraising.
It is obvious that the sector is rallying and that there is substantial evidence of the challenges that government policy is creating.
However, there is more for each charity to do to fight its own cause and enable its stakeholders to engage either financially, operationally or vocally. The community has a strong connection to their local charity. We must find better ways to involve them in our efforts and rally their support to strengthen our chances of success.
Adam Halsey is partner and head of care, community and housing at HaysMac
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