CHARITIES which provide services for local authorities and the NHS are facing a desperate challenge this winter, research has suggested.
NCVO (the National Council for Voluntary Organisations) found that 73% of charities lacked the resources to meet demand for the public services they have contracted to deliver.
Sam Mercadante, NCVO’s Policy and Insight Manager wrote:
“While underfunding is not a new problem, the impact of continued high inflation has put charities delivering public service contracts at crisis point.
“The options are bleak: charities will either stop operating completely, cease delivering much-needed services, or use charitable funds to subsidise public services.
“With charities delivering £16.8bn worth of public services each year, there are millions of people at risk of not having their needs met if support isn’t given.”
Services to support homeless people, autistic children and victims of domestic violence or sexual abuse are among those predominantly provided by charities.
Addressing the funding gap
Charity finance expert Mark Salway has long argued that many charities do not price their services at a level that covers a contribution to their overheads or building for the future.
“Charities are mission-driven.
“They feel they have to take on these public contracts in order to have an impact on behalf of those they were set up to serve, even at a loss. This has been exacerbated by the cost of living crisis.
“These contracts don’t often cover full overheads, and certainly won’t include any money for innovation or to build for the future – but you still have to get that money from somewhere.
“Getting into these contracts may well be the right thing to do from a mission point of view, but you need to know how any shortfall is going to be filled.”
Good communication with the organisation that is funding the contract can be important, he says. Such contracts will tend to include break clauses – and the other party might be amenable to discussing the issue if it knows the arrangement is no longer viable for the charity.
“In the commercial sector, people would be realistic about making sure they have sufficient money.
“Charities need to do the same sort of thing. They might want to get into the contracts because of the impact they can have by doing so, but they really need to be clear about where any shortfall is going to be funded from.”
He warns charities to think carefully before running down reserves to plug the funding gap.
“You still need a prudent level of reserves, so using them to address a revenue shortfall needs to be carefully thought through as part of a broader strategy.”
Getting on top of the data
Mark argues that planning is the key to dealing with many of the problems facing non-profits. Working on some good and bad scenarios and how your organisation would react under extreme stress, for example.
The added difficulty is that many charities simply don’t have a clear and current view of their financial picture that would help them do that planning.
The work of finance staff in many non-profits is dominated by laborious data entry and by tracking funding in spreadsheets.
Producing any meaningful management information and scenario planning can involve many hours spent manipulating figures in Excel while presenting the data for different audiences is an ordeal. Often, the month-end process takes so long that the finance information is already out of date by the time the senior leadership can see it.
Charities need systems that automate as many of the lower-level, repetitive tasks as possible. Leaders need to be able to easily analyse costs and track spending of grants and funds. Even more importantly, they need to make decisions based on data that’s complete, correct and timely.
“We need to move from being reactive to being proactive – to planning ahead.
“However, you can only do that if you have the information to constantly re-project and re-plan.
“Being on top of the data and playing out different scenarios will really help for the long-term but it starts with tight systems.”
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