As the cost of living crisis bites harder, and demand for charitable services increases, Hannah Lyons from Bates Wells considers how charities can make maximum use of their resources.
The cost of living crisis has been having a major impact on charities and their beneficiaries for some months now. Many charities are only just recovering from the effects of Covid-19 and are now faced with the fresh challenge of meeting beneficiaries’ needs amid falling income but rising demand and costs.
The Charity Commission published guidance for charities in December 2022 about how to manage financial difficulties arising from the crisis. Here we offer some suggestions for trustees to mitigate its impact.
Redefining strategy and purpose
The challenges brought about by the cost of living crisis may require charities to reframe their strategy and consider how
they can best use their resources to meet their aims and to help those affected.
When thinking about changes to strategy it is important for trustees to go back to the objects (or charitable purposes) of the charity as set out in the governing document.
Charities are, in general, only legally permitted to carry out activities that further their purposes. It is permissible for a charity to focus on one particular strand of its objects. But if you are looking to undertake new activities to meet the challenges of the cost of living crisis or to help different groups of people in different areas, then you may need to amend or widen your objects.
Amending objects requires the prior consent of the Charity Commission. The process can be lengthy, so it is best to submit an application well in advance of any change to activities. The commission managed to prioritise applications relating to the Covid-19 crisis, so we hope that they will do the same for changes relating to the cost-of-living crisis.
The Charities Act 2022 will introduce changes to the process of amending charitable objects, including introducing a new statutory test for corporate charities (charitable companies and CIOs), which the commission will have to apply when considering whether to give consent.
Maximising funding
Despite a squeeze on funding, there are ways that charities can seek to diversify income streams and release funds from existing restricted income and assets.
Social investment
Many social banks, foundations and intermediaries offer social investment for charities – whether through loans or quasi equity deals that can help with short-term cashflow issues. Good Finance is a good place to look at potential products in the market.
Grants
Some foundations are offering funding specifically to help charities through the crisis. In terms of existing funding arrangements, if your charity is struggling to meet any project delivery requirements it may be worth asking funders about making changes to delivery times or the scope of grant arrangements.
Public and corporate fundraising
You may be able to diversify your traditional fundraising methods. During the Covid-19 crisis lots of charities looked to new and innovative ways of raising funds, particularly via digital forms of fundraising and things such as prize draws and competitions where the supporter is potentially getting something in return.
There has also been a big increase in corporate partnerships, with companies wishing to support campaigns relating to the crisis.
With any fundraising activity it is important to ensure that your charity is compliant with the law and Code of Fundraising Practice and that you manage risk appropriately.
Unlocking existing funds
It is worth looking at how your charity may be able to release existing restricted funds. Certain funds may be ‘designated funds’ that have been set aside for a particular project or use, but this is not binding.
Trustees can decide to ‘un-designate’ them and use the funds for another purpose, such as funding core costs. It may also be sensible to review the charity’s restricted funding and endowments to assess whether:
i) a fund is indeed restricted under law (or whether there is more flexibility in spending it);
ii) it is possible to take steps to change the purpose of a restricted fund; or
iii) to spend permanent endowment (this may require Charity Commission consent, depending on the amount).
Property
Premises are often one of the biggest costs for charities and therefore it may be worth looking at how your charity can unlock the value of its real estate. If the charity is the freeholder, it has a number of options available, including considering whether now is a good time to sell and realise your property’s value, or to let out all or part of it to generate income. If the charity is a tenant, then the first step is to review your lease.
If it is coming up for renewal then you may be able to negotiate a better deal with the landlord; or if there is a break clause you could potentially look for more cost-effective premises.
Supporting staff
As well as supporting beneficiaries, charities may also wish to support staff who are struggling with rising rents and food and energy costs. There are a number of ways that a charity may do this, including offering one-off bonuses or loans to help staff meet additional costs, or setting up a hardship fund for those who may need to access support.
Non-financial support may include ensuring that existing benefits and employee schemes are publicised and easy to access or providing an extra day’s annual leave.
Maintaining good governance
In managing any crisis or when looking to implement strategic change, it is imperative to maintain good governance. It may be necessary for trustees to meet more often in order to assess financial and operational risk, and appropriate minutes should be kept of all key decisions. Trustees should follow relevant Charity Commission guidance, including guidance on decision making.
This article was kindly reproduced with permission from Bates Wells. It was first published in its Charity Update Horizons publication, January 2023.