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Charity funding crisis: one in three over-reliant on a single source of funding

One in three charities fear they are over-reliant on a single source of funding, according to research by specialist insurer Ecclesiastical.

Funding remains the single biggest concern among charities, the survey of 200 charity leaders found, with cuts in public sector grants and increasing uncertainty in the economy leaving many charities on the brink.

The challenging financial situation facing the sector has been highlighted with a number of charities being forced to close recently after they lost their main source of funding. Casualties in recent weeks include the youth charity Fixers, Bristol Playbus and Northern Ireland charity PLACE.

Angus Roy, charity director at Ecclesiastical, which insures more than 45,000 charities, said the situation for many charities was perilous:

“The charity sector is under more financial pressure than ever before. Cuts in funding over recent years have left many charities reliant on a limited number of income streams. If one of those streams is lost then charities find themselves in a very challenging situation.”

Charity leaders were asked how long it would take to secure a replacement if they lost a major source of funding.

Over half (54%) of respondents said it would take them at least a year, signalling a critical timeframe for the survival of the charity. Worryingly nearly one in ten (8%) of respondents said it would mean the end of the charity.

The research also found that many charities don’t have deep reserves to weather a potential financial storm, with 56% of charities saying their reserves wouldn’t last a year.

Angus added:

“This is a major risk across the sector, particularly as many charities admit they would struggle to secure new funding quickly. In these challenging times, charities need to be able to adapt to ensure their long-term survival.”

The good news is that many charities are successfully managing their financial risks by diversifying their income.

Sixty per cent of respondents in the survey said they had successfully diversified their income in the past three years. This was mainly through providing extra services to win funding (56%), commercialising activities (49%), applying for awards (44%) and from corporate partnerships (41%).

The research shows this is set to continue, with over half of charities planning to diversify further in the next 12 months.

Angus said:

“Diversification is crucial for the survival of the charity sector. By exploring new opportunities and identifying the right ways to diversify, a charity can minimise the risk of going under if one source of funding is cut. The funding environment will only become more challenging and so charities need to think more radically about how they manage their risks in order to protect their income.”

Richard Sagar, Policy Manager at Charity Finance Group (CFG), agreed that charities needed to take brave steps to ensure their sustainability.

He said:

“These findings should be a wakeup call for the sector and are consistent with CFG’s own research which indicated that the majority of our members are reliant on a single source of funding for the majority of their income. Charities will need to up-skill their workforce to gain the necessary skills to explore new revenue streams and diversify their income, and while difficult to achieve, is necessary to ensure their long-term sustainability, and in some cases, their survival.”