Meet our Expert
Pauline Broomhead is the founding CEO of the FSI, a charity focused on arming small charities with the best learning opportunities to secure a sustainable future. Pauline’s career has seen her work on campaigns with many of the most high-profile charities in the UK and abroad. Today, Pauline uses this experience to deliver free training, development and support services to small charities.
“Our funding is running out- what should we do?”
The short answer is diversify! If your funding is ‘running out’ it suggests that your charity has been too reliant on one or few similar sources of funding.
Mixed Income Economy
At the FSI, we practice and promote a mixed income economy to small charities – this means having a number of sources from which you raise funds. To be sustainable, you should have at least two of the following types of income: voluntary, statutory and earned, or, at the very least, a diverse mix of funding within one type. You should also ensure that no more than 30% of your income comes from one single source for example a major donor or local authority grant.
As you would expect, the voluntary sector has its financial roots in voluntary donations either from individuals or from grant-giving trusts (often set up by philanthropic individuals). UK Giving, CAF and NCVO’s long-standing study of charitable giving habits reported in 2011 that donations are now worth £900 million less in real terms than the amount given in 2007/08, the year before the UK entered recession. Even in the world of grant-giving trusts and foundations, donations are reduced because low interest rates mean that the amount of money made available for grants is less than in previous years.
Taken for granted?
Turning to the public sector, charities are still attracting income from statutory sources but the structure of these payments is very different compared to 20 years ago; where the majority of money transferring from the public sector to charities was once in the form of grants (that is, 100% of the money paid up-front), the bias has now swung to contracted services. Charities are expected to compete in a marketplace of service providers and demonstrate to the public sector commissioner that they can provide the outcomes the local authority or central government department wants to buy. What’s more, the authorities now pay ‘by results’ meaning that only a portion (as little as 20%) of the funding is given up-front, the remainder as a reward for the outcomes produced whether that be young people gaining qualifications, a disabled individual moving into independent living accommodation or a drug addict staying clean. For the taxpayer this is good news: only the service providers who achieve those results will get funding. For the charity sector, however, where few organisations have large cash reserves, the bad news is that these contracts can cause a cash-flow problem. The public sector has also moved towards services covering larger areas such as whole local authorities or even UK regions – the capital investment needed even to run one of these contracts prevents small organisations (whether run for profit or not) from being able to compete.
So given this seemingly bleak outlook, what can you do to ensure that your funding doesn’t run out and that you can continue to provide excellent services to your beneficiaries?
1. Get real and have a strategy
Do not ignore all of this crucial information and continue trying to do what you have always done to raise funds. You need your trustees to get on board with a new strategy that navigates the current funding climate to the advantage of your organisation and its beneficiaries. Without your trustees on board, you will struggle to refocus your fundraising activity.
How will your strategy ensure that your income is mixed and from a range of sources?
2. Consolidate your voluntary
Although the public is giving less overall, they are still giving and actually more individuals are giving. An additional 1.1 million people donated money to charity in 2011 and as the UK comes out of recession, the average gift will increase again. So consolidate your donor work with good stewardship and ensure you keep your loyal donors even if you don’t invest too much in attracting new ones.
3. Set up for statutory contracting
If you have relied on statutory income, do not fear – the public sector still needs small charities because you are localised, specialists in the needs of your beneficiaries and experienced. The downside of the large-scale outsourcing is that it has attracted cash-rich private sector generalists. Their strengths are in managing large contracts and reporting to government but they need you in their supply chain. You need to identify the government department to which your work is most closely aligned, research the policies and the commissioning plans of that department and how this is devolved to local authority level.
How do your charity’s services fit in with these priorities? What part can you play in that arena?
Finally, find out who the large players – the ‘Prime Contractors’ – are in your area of work. Meet with them and understand how to enter into their supply chains. You’ll have to go to them because there are 148,000 charities and they can’t approach all of them!
4. Develop earned income
The charity shop is the best known model for charities to ‘earn’ income in a commercial sense but organisations with real longevity have a way of earning money outside of grants and contracts. The advantages of having an earned income stream are that it is flexible, more under your control and sustainable assuming the product you trade in continues to have a market. Ideas include setting up a charity cafe on your premises, recycling furniture/bicycles or other things for sale or selling your expertise – many charities provide information, speak at conferences or offer market research data to public sector organisations and even private companies free of charge. Your knowledge is your intellectual property – guard it, charge for it and use it to generate income for your charity.
Pauline Broomhead is the founding CEO of the FSI, a charity focused on arming small charities with the best learning opportunities to secure a sustainable future through free support services. This year the FSI’s annual research piece has surveyed small charities across the UK to ask how the localism agenda is affecting them and their beneficiaries.