Are more charities closing?

Another aspect of the Kids Company closure (following my earlier posts on reserves and children’s charities) is whether it’s part of a wider trend in charity closures. A less high profile closure, but one which also has an impact on beneficiaries, was BAAF, an adoption and fostering charity that closed at the end of July. Other examples include IdeasTap, an arts funder which closed in May.

A Google news search for charities closing is also illuminating, showing the large numbers of smaller, local charities which have closed.

So are more charities closing? The Almanac has demonstrated the difficult times the sector has faced over the last few years – the recession in 2008, followed by government austerity since 2010. But has the difficult financial climate translated into actual closures of charities, or have organisations been able to keep going with reduced budgets and reduced services.

I’ve covered this ground before: back in 2012 a Daily Mirror article claimed that over 7,000 charities had closed in 2011. My analysis showed why this headline number was context-free, and possibly misleading.

Many of the points made then still stand. The chart below shows there is still constant change on the register – around 400 organisations added each month, and 300 removed. The peaks in removals come from Charity Commission activity (a concerted effort to remove defunct organisations) rather than actual closures occurring at those times. There’s certainly no trend in the figures that would indicate more organisations shutting their doors.

Looking in more detail at this is difficult – charities deregister for a variety of reasons, not always because they have gone out of business. Notably, many charities reregister when they incorporate as a company. This shows up as a removal from the register, but actually the charity has continued. Mergers are also a factor – sometimes a charity mergers because it is in difficulty, sometimes a merger is a strategic one between two ‘healthy’ organisations. As Karl Wilding is fond of saying, charities often don’t burn out, they just fade away.

I’ve done some analysis of some large organisations that have closed over the last ten years. As always, there’s caveats around this kind of data. These are organisations whose last recorded income before closure was over £1 million, so it won’t include organisations that gradually wound down over a few years, or recent closures like Kids Company. I’ve tried to remove any reregistrations, and other non-relevant removals like Academies (which were removed en masse when their regulation changed).

As described above identifying ‘real’ closures is difficult, but what does the data tell us?

The picture is mixed. There is a jump in closures between 2007 and 2008, with no obvious cause in the data (though I think the register of mergers begins its coverage around this time). 2013 also sees a high point in removals.

But we also have to consider that there are growing numbers of £1 million plus charities over this period. Between 2008 and 2013 on the chart, the proportion of organisations with more than £1 million that have closed holds pretty steady at just less than 1%. While the data for 2014 and 2015 is not yet complete, there’s no sign of a large rise in these years.

We can’t be complacent – many charities are facing a difficult time, and the high profile closures we’ve seen recently show that this can lead charities to shut their doors. But charity closures are still rare, and as Karl demonstrates there are ways that charities and trustees can anticipate and deal with problems.

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Avatar photo David Kane was formerly NCVO’s Senior Research Officer. He discusses open data and emerging trends in the voluntary and community sector and wider civil society.

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