Charities must adapt to survive in these turbulent economic times. They need better financial systems and should consider diversifying their income streams and collaborating with other third sector bodies.
How is the recession affecting the charity sector? Much has been written about what it will mean for voluntary and community organisations, yet there is little consensus. The first thing to say is that it will be challenging in lots of different ways, and for many and varied reasons.
We know this is already a very different ball game from the 1992 recession. It is safe to say there is considerable media conjecture and many anecdotes about the impact of a recession on the sector, but as yet very little UK long-term trend data. In truth, no-one is clear about the impact of this recession on funding streams.
Indeed, it is unrealistic to talk about the sector as a single entity; what has already been reported leads us to conclude that the impact on organisations will be mixed. Size, speciality and geography will all play a part in how different organisations fare. Some will emerge stronger from the recession; some will face increased demands; others fewer; and some will fail.
Some income sources and costs will increase, as others will decline. Despite the gloomy economic outlook, almost half of voluntary organisations (48%) plan to expand their services, according to the latest quarterly survey for the National Council for Voluntary Organisations.
We need to be clear that the future is not all doom and gloom, as some have portrayed it, but neither should we assume that there are unlimited opportunities.
In some cases, organisations are being forced into actions that run counter to what the NCVO would want to see. For example, despite a growing demand for the essential services that the voluntary sector provides during the recession, the economic downturn is forcing many charity leaders to put the brakes on recruitment, as the NCVO’s Charity Forecast Survey revealed. Almost a fifth (19%) of charity leaders surveyed said they planned to decrease the number of paid staff, with more than half (51%) of them maintaining staffing levels.
Government funding (grants/contracts) and donations/purchases account for three-quarters of charities’ total income. What happens to these income sources will be crucial to the ability of the sector to emerge from any downturn.
With regard to donations, the evidence suggests that philanthropy is relatively resilient. Charitable giving is heavily dependent on a core of 2.1 million donors.
On a positive note, historical evidence from both the UK and US demonstrates that recessions slow the rate of increase in charitable giving rather than halt it. Unpublished evidence from the NCVO and the Charities Aid Foundation also suggests that donations rose slightly last year.
However, donors’ habits might change: anecdotal evidence suggests that they focus on causes they already support, and they change their method of giving to ensure more money goes directly to the cause.
This is why it is crucial that charities consider a wide range of measures to secure their long-term future. This turbulent time might mean organisations will have to act quickly and decisively — so having good systems for receiving information about financial performance will make all the difference.
The financial climate is now very different, which means that it is more important than ever that charities look into diversifying their income streams. And they might have to consider working in collaboration or merging as an option to ensure survival.
Again, the survey revealed that almost three quarters (74%) of charity leaders expected collaboration to increase over the coming year.
It is too early to tell exactly what will happen in this downturn or how long it will last — but it is likely that less public money will be available.
However, it is clear that a combination of government, the market and civil society will provide long-term and lasting solutions for society. This interdependence is crucial to build a new vision for social and economic stability. It is a concern that the focus has been almost entirely on state or market solutions: civil society needs to be more active in providing alternative solutions to this situation.
This is a time when we all need to pull together to make sure that local communities emerge from the recession stronger.
Stuart Etherington is chief executive of the National Council for Voluntary Organisations
