James Pinchbeck, partner at Streets Chartered Accountants, considers the challenges being faced by charities and not-for-profit organisations.
The last few years have been challenging for many businesses and individuals alike, few though might appreciate the real upheaval and even struggle faced by charities and not-for-profit organisations.
The issues they face are often around declining income, increased costs and in many cases increased demands for the work they do, especially for those providing social care, wellbeing and mental health services and support for individuals affected by the cost-of-living crisis. We have also seen similar pressures and concerns for those involved in the arts, culture, and heritage as well as many research organisations.
Whilst businesses can look at increasing prices and passing on costs to maintain margins, or look at cost savings to manage the situation, it is not as easy for those in the not-for-profit sector. Incomes, especially for funded projects, programmes, schemes, or activities, tend to be fixed, as do the costs associated with delivery. It is also often more challenging to seek alternative sources of revenue or adapt services for new markets or opportunities.
Those that have traditionally relied on donations have seen a decline in individual giving. Dealing with the cost-of-living crisis has led to a cost of gifting crisis.
Managing budgets and working capital has no doubt become an even greater focus especially in light of increased operating costs with the overheads like energy and insurances all having gone up.
Whilst financial challenges are high on the minds of the Boards and teams running organisations, they also see a number of other issues and concerns around their ability to fulfil their charitable objectives. These include issues around staffing, with the affordability of pay in many cases leading to situations where being able to recruit and retain staff is based on the ability to meet pay expectations. Certainly, being able to compete with the salaries for jobs with similar roles in the commercial sector is becoming more of a concern.
Pressures on fulfilling or maintaining activities and providing services also creates an additional risk. With a stretched workforce and systems and processes under pressure, this potentially creates a situation where quality and delivery standards are not met. This could lead to not only failure to meet obligations but also the real threat of reputational risk. Like any organisation under pressure, sub optimal working practices and approaches can lead to an increased risk of health and safety breaches.
The vulnerability of organisations in the third sector often leads to them being the target of cyber-attacks, fraud, and data breaches. Keeping up to date with procedures let alone being able to invest in mitigation and management around such things is certainly a real challenge. So too is the ability to adopt and capitalise on digitalisation for ‘business’ processes and marketing alike.
More recently the general election and a change of government might give rise to a renewed level of optimism around support and assistance for the sector, equally it could give rise to concerns about new legislation or focus that may be less favourable. Certainly, and not least the announcement to charge VAT on school fees could be a sign that charities across the board may find changes to what is deemed to be charitable activities.
Recognising the significant contribution and the vital role charities play in society and as part of our mixed economy, it is important that we seek to support them, be it as a volunteer, by donating or fundraising or even considering becoming a trustee or board member.
As specialist accountants and tax advisers to the sector we believe that we play a key role in not only providing assurance but also in understanding the challenges clients face and being able to provide support and advice. This often being critical to and welcomed by stretched teams and Boards with pressures on thinking space for longer term planning.
See this column in the September issue of East Midlands Business Link Magazine here.
