Sense and sustainability: A reaction to the NCVO Financial Sustainability Review

Lewis Garland, communications executive at Localgiving, a membership organisation for local charities and community groups, sings the praises of smaller organisations, examines the implications for them of NCVO’s Financial Sustainability Review, and discusses what can be done to help.

The Financial Sustainability Review was fascinating to Localgiving  It substantiated much of the anecdotal evidence that we, as a membership organisation for local charities and community groups, have been hearing from our members. Of particular interest was the data about small charities, a group that makes up over 90 per cent of our membership base.

Smaller charities taking the hit

The broad picture comes as little surprise – the recession and subsequent cuts hit the sector hard but the green shoots of recovery are now visible. However, the devil, as is so often the case, is in the detail.

There are stark differences in the way this recovery has been experienced – an upturn for a small number of large, mainly London-based charities has masked the stagnation and economic hardship experienced by the majority of smaller charities across the country.

Less money, higher demand

The findings (p.15 of the review) make difficult reading:

• small charities have been far more affected by government spending reductions, due primarily to their reliance on local government funding which is where the majority of cuts have been made. Charities with an annual income of under £1m have lost on average 34 – 38 per cent of their government income
• despite an overall rise in staffing in the voluntary sector, staffing levels in small charities dropped by a quarter between 2011/12 and 2012/13
• rises in net total assets for major charities (which own 70 per cent of the sector’s assets) have masked falls in the wider sector. Smaller charities have seen falls of five to ten per cent in the value of their fixed assets in the last year alone.
• a rising demand for services has led many charities to prioritise short-term service delivery over capacity building, leaving them under-resourced, deskilled and in increasingly precarious financial situations.

What can be done to address this?

Some of these factors are beyond the control of the sector. Larger organisations in all sectors are often able to better protect themselves from financial fluctuations. Moreover, the issues around London-centrism are not reserved to charities.

However, there are lessons that small charities and their advocates can take from these findings. Firstly, small charities must diversify their income. There has long been an over-reliance on single funding sources, leaving many groups highly vulnerable to changing economic circumstances. There are undoubtedly challenges to finding alternative funding sources – the development of new skills, practices and contacts takes considerable time and resources.

Perfectly formed

Small, local charities do have certain characteristics which can be used to their advantage. As the report, Small is beautiful— experimental evidence of donors’ preferences for charities, explains there is evidence that the general public’s perception of small charities is far more positive than of their larger counterparts.

Another study, Community perceptions of and suggested fundraising strategies for local charities discusses how smaller charities are seen as more trustworthy, efficient and client-centred, and that they are appreciated for the role they play in community life.

Two strengths of smaller charities that must be used to the fullest are:

1. their unique ability to engage the general public
2. their flexibility.

Small is beautiful

Community networks. As this study shows, people prefer to donate to charities with which they share strong emotional connections. Charities and businesses alike spend big on personalised marketing, aimed at inducing a sense of involvement and association.

The very nature of small, local charities gives them an advantage in this area. For example, the lives of staff members, volunteers and beneficiaries often overlap outside of the organisations. These shared experiences and community networks provide opportunities to engage local groups, clubs, schools, etc in their causes and ultimately convert them into fundraising or donor opportunities.

Flexibility. There are advantages to being a ‘nimble organisation’ (p. 15 of the review). Small charities must recognise and capitalise on their ability to react spontaneously to changing circumstances. Be it adopting new funding structures (from online fundraising to private investment) or reacting to arising local needs.

Less than ten per cent of donations go to small charities

With a better grasp of fundraising techniques and digital technology (58 per cent of charities remain without basic digital skills, p.23 of the review), donations from the general public represent a major growth area for small charities.

The Charities Aid Foundation found that 74 per cent of people in the UK donate to charity, but just seven per cent of all donations go to small charities.

However, the responsibility for saving and safeguarding the sector cannot fall solely on the shoulders of charities themselves.

As advocates of small, local charities we must push harder to ensure that the government recognises the importance of the sector – and acts accordingly.

These groups are an essential part of the fabric of community life in the UK. Their services are invaluable and often irreplaceable. As NCVO explains in its review (p.21):

“The voluntary sector needs a diversity of organisations of all sizes in order to effectively meet the need of beneficiaries. Small organisations are often locally rooted and this ensures that there are suitable partners with local expertise to deliver services in collaboration with larger charities. Continued significant reductions in capacity would endanger this delivery model and limit the ability of the sector to deliver services”.

Unique value

NCVO’s Financial Sustainability Review has highlighted the depth and complexity of the issues facing small charities. Of course, there is no quick or easy fix.

However, there are actions that can be taken to improve the situation and safeguard the sector. We must help charities to gain the skills necessary to benefit from new funding streams, such as online giving or private investment.

Equally, we must ensure that the government is always kept aware of the unique value of small charities and the often irreparable damage done through cuts.