Since lockdown hit in March there have been countless predictions of financial doom and gloom for charities. The NCVO estimated charities would lose £4bn of income in twelve weeks of lockdown and the Institute of Fundraising reported that charities are planning on an average 24% reduction in income for the current financial year.

More recently, the evidence suggests that the immediate impacts have not been as bad as predicted with an estimated 14% reduction in voluntary income experienced since lockdown (against predictions of a 42% drop), albeit that traded income has fallen by 72% (and the full year prediction being a 57% drop).

The recent publication of the 2020 NCVO Almanac (which analyses data from 2017/18) has, perhaps unsurprisingly, led the NCVO to predict that the sector will shrink as a result of the impacts of the pandemic. This is based on the 2017/18 data showing a slowing of income growth and government support having fallen to its lowest level ever. Mitigating factors appear to be the dramatic increase in volunteering since lockdown and the fact that by 2017/18 the sector’s overall level of reserves had recovered to pre-2008 financial crisis levels.

This latter point is taken to suggest that charities should be more financially resilient. However, a more careful look at the data reveals a worrying picture. The chart below shows that the distribution of reserves across the sector is far from uniform, with smaller charities and those in key service sectors such as employment and training, youth work, culture/recreation and social services being among those with the lowest levels of reserves (Village Halls being by far the lowest on average).

If civil society is to be able to do its bit in the recovery, an essential pre-requisite for any effective recovery, then some of these grassroots organisations meeting key societal needs must be supported. However, funding is likely to be ever scarcer and competition much increased.

In our view, funders (including the public) need to be more sophisticated in how they choose which charities to support. They will also need to take some calculated risks.

We do not advocate handouts to help fatally damaged organisations limp on for a few more months. However, some critical local service providers are likely to be on the brink of collapse. Funders should be flexible in providing help to those in crisis, in contrast to the traditional approach of only funding those who appear to be in rude health. In doing so, funders should insist on (and support charities to develop) robust recovery plans to help ensure they survive and then thrive into the long-term.

Some farsighted organisations, like the Good Faith Partnership, are already turning their minds to how, practically, they can help charities get through the crisis and emerge better than before; more resilient and delivering better, more impactful services for their beneficiaries. Funders should be teaming up with such organisations to offer holistic support packages of immediate money, expert help to plan for the future and long term relationships that recognise the likely long term recovery journey many will be embarking on (after all, it took a decade for reserves to recover to pre-financial crisis levels).

Equally, charities need to be open to new ideas, capture learning from lockdown (what works and what doesn't) and team up with a wide range of partners to develop creative new approaches that will make a bigger impact for beneficiaries. Those who can capture the imagination of funders with a “better than before” strategy are far more likely to emerge from the crisis in a position to thrive in the long term.

Everyone needs to think long and hard about whether hand-to-mouth business models with thin margins, minimal surpluses and anaemic reserves can ever again be the stock in trade of the small and medium-sized charity sector. For the foreseeable future we can expect to live in a highly volatile, uncertain, complex and ambiguous world and all organisations need to develop the financial, human and strategic resilience not only to survive but to prosper. Funders need to do their bit to help those charities with the greatest potential for impact and a commitment to resilience to achieve those goals.

Perhaps most importantly, we all have a duty to keep thinking and talking about these issues. No-one knows how things will work out but if we keep up the debate, with respectful challenge, we can find formulae that work.

If you would welcome a conversation about any of the reflections in this blog please do contact us at julian@almondtreeconsulting.co.uk.