Charities feeling the effects of the recession warns report 14/07/09

By Claire Racine

New research shows that more charities are now feeling the effects of the recession, and that 56% of charities expect a decline in their income going forward.

The research by the Charity Finance Directors' Group, the Institute of Fundraising and PricewaterhouseCoopers highlights that 80% of charities are expecting income to remain flat or to decline.

Charities have seen a greater than expected decline in almost every income stream. The exceptions are statutory income, where 83% of respondents indicated no change, although some 70% expect a decline or no change going forwards.

This anxiety is likely to be well-founded, as high levels of Government borrowing (around £175bn over each of the next two years) are expected to be repaid through efficiency savings and cost reductions in the public sector.

Likewise, the legacy pipeline means that respondents expect the impact of the recession on legacies to be felt in the coming 12–24 months, with volume holding up but the reduction in investment and property values reducing their realisable value.

On the positive side, more charities are now using the recession as a management opportunity, with 78% of respondents taking action as a result of the recession, up from 71% in November 08.

But there has been little change in the number of respondents who felt they had adequate financial planning systems in place. In particular, since ‘cash is king’ in a recession, we are concerned that only 56% of respondents (a 1% drop from November 08) felt they had adequate cash flow monitoring systems in place.

In terms of the effect on operations, there has been a small drop in the number of charities expecting to see a reduction in their activity, along with those expecting to make redundancies.

However, 20% are still expecting to see cuts in services, despite the fact that 36% expect to see an increase in demand for their services.

There has been a reduction in planned investment in every area of fundraising, which we take to indicate that some charities have already made investment in fundraising since December 08 and are not investing further.

The December 08 report suggested that the use of reserves would be a key consideration for trustees, and 44% of respondents reported in May 09 that they intended to utilise their reserves to fund services during the recession.

Respondents indicated that reserves would be used to fund ongoing activity whilst assessing the reductions in funding, to “pump prime” investments in new opportunities and to fund the costs of restructuring.

In the December 08 survey, 34% of respondents indicated that they would consider merger or collaboration with another charity as part of their planning process, or outsourcing.

This view has remained consistent, with 26% of respondents now saying that they would consider merger or collaboration, and 10% considering outsourcing.

Keith Hickey, chief executive of the Charity Finance Directors' Group, said: “Good financial planning, cash flow forecasting and liquidity are essential tools for charities to maximise their position in the current climate.

"It must be remembered that reserves are there to help manage risks and to fund opportunities and now is the time for charities that have built up reserves to use them to maintain services for beneficiaries. Finance Directors need to show leadership, and they need to work closely with fundraising directors to plan for the coming year.”

Lindsay Boswell, chief executive of the Institute of Fundraising, commented: “By bringing together fundraisers and finance directors and using the wider perspective of PricewaterhouseCoopers this report provides a unique insight into attitudes and experiences of charities currently in the grip of recession.

"It’s important that all charities pause to take a sense-check of thinking and attitudes to ensure a sound strategy to manage in the current climate. At the same time, fundraisers need to continue to plan for the future – building partnerships with donors and supporters, and continuing to establish meaningful and long-lasting relationships with them.”

Ian Oakley-Smith, director, PricewaterhouseCoopers, added: “Many Boards of Trustees of charities will need to demonstrate not only strong leadership skills, but also to think strategically and to challenge perceived wisdom.

"In particular, they need to think about whether collaboration with other charities or even mergers might provide a more robust environment in which to operate. This may not be popular, but in some cases may help charities to maintain services to beneficiaries.”

The research was conducted in May 2009 amongst members of CFDG and the IoF, and it provides an update on the first “Managing in a Downturn” survey, conducted in November 2008.

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