BLOG: Building capacity to weather challenges essential

Over the past five years, the voluntary and community sector has been at the frontline of public spending cuts. With grant funding disappearing and commissioning increasingly skewed towards larger organisations, community organisations have faced massive instability in income. Meanwhile, our members are seeing huge rises in demand and complexity of need – and are increasingly worried about their ability to provide services to meet people’s needs as funding is dropping off.

And while we know that the resilience in the community sector is pretty solid – many of our members deliver huge long term social impact in the areas they work, and have continued to provide sustainable services for their communities throughout austerity – we also know that there is a real risk that as spending cuts deepen, many organisations may struggle to keep afloat.

The excellent research launched last week from IPPR, NCVO and Lloyds Bank Foundation shows that it is the small and medium sized charities (that is, charities with incomes between £25,000 and £1 million) which have been the hardest hit by cuts to public funding of the voluntary sector since 2008. What is more – it is those organisations working in the most deprived areas, working with people in the most need of support, who are far more exposed to risk than others.

With more cuts to public spending on the way, and changes to the way local government is funded set to bring additional pressures as councils struggle to keep statutory services afloat, the picture for the sector remains challenging. What is clear is that organisations need a range of support to diversify their income streams and build stability in order to continue to provide services to their communities.

As well as Locality’s member network, which encourages resilience through peer learning and assistance, access to training and development support, Locality offers its own Lifeboat service, which was set up in 2008 to support community organisations who are experiencing, or are at risk of, difficulties that threaten their viability. In 2014-15 we supported on average one organisation a week, by providing advice and practical help to avert organisational crisis.

The organisations accessing this support are facing crisis for a range of reasons, commonly around the external commissioning and funding environment – such as increased financial risk in contracts, leaner contracts, unstable prime contractor models and increasing commissioning at scale. This means organisations are having to resort to short term tactics such as using reserves to cover shortfalls, reducing workforce and increasing reliance on volunteers and trustees.

We know from the Lifeboat service that organisations operating in ‘crisis–management’ can quickly find this approach becomes unsustainable – and when this approach is also combined with weak governance arrangements or a lack of management expertise and poor financial knowledge – crisis can quickly escalate.

The support we offer ranges from practical support around stabilising cashflow, negotiating with funders and developing business turnaround plans, to preparing long-term strategies on alternative business models, staff reorganisation and interim management. The most common aspect of support required from Lifeboat is around cashflow forecasts.

The benefits of the Lifeboat approach reach far beyond the organisation being supported: in many cases Lifeboat has safeguarded services which are essential to the people that access them, and has protected a legacy (often built up over decades) or community support and social capital.

We fund the Lifeboat service from our reserves because we recognise it is essential to ensuring organisations facing crisis have access to expertise and support that can help to turn things around.

But the long term aim has to be to reduce the need for Lifeboat. With the right support at key times in an organisation’s development, the need for crisis interventions could be significantly reduced. This is why we have been working with funders, such as charitable foundations, to make recommendations for how they can provide additional support as an integral part of their grant packages and incorporate risk reduction support into grant and finance application stages. This could include support such as board development sessions, and training around governance, financial understanding and scenario planning.

Over the next five years, building this capacity and resilience within the sector to weather increasing challenges will be essential to ensuring vital services which underpin strong communities are safeguarded – and responsibility for that lies with us all.

Tony Armstrong is chief executive of Locality

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