At a time when the UK economy is struggling and most people are cutting back on their spending there are many challenges facing charities. There were 161,657 general charities registered with the Charities Commission on 1 November 2011 and between them they received annual income of £55.2bn. These numbers are impressive, but once you dig deeper there is a wide divergence between two groups of charities, the very large and the very small with few falling into a medium category.
Of the 161,657, some 71,000 (43.7%) had annual income of under £10,000, totalling £0.2bn. A further 51,000 (31.5%) had income of less than £100,000. In total 75.2% of all charities (122,000) have income of less than £100,000. The total income of these is just over £2bn out of the total of £55.2bn.
The big charities take the majority of the income. The biggest players number around 1,700 (1.1%) each with annual income of over £5.0m. These 1,700 have total annual income of £37.2bn and take 67.4% of charitable income. Overall the top 10,000 charities (6%) take 88.8% of the annual income, leaving the other 90% of the charities with an average annual income of around £44,000.
Charitable income has increased from £23.7bn in 1999 to £53.9bn in 2010; a very positive trend. The proportion going to charities with income over £10m has grown from 43% to 56% over that same period.
These statistics underline that the charities sector is a two-tier world, but all charities face similar commercial and regulatory challenges.
Reducing government funding is hitting the whole sector, but has a particular effect on the smaller, specialist charities. The regulatory challenges for small charities come from the plethora of rules and regulations, such as investment guidelines, governance standards, the Bribery Act (particularly for those operating in foreign jurisdictions) and changing VAT regulations.
Declining income, pressures on trustees and fraud within charities all combine to bring about situations where charities cannot continue without radical change.
Against this background it's not surprising that many charities are getting into financial problems.
Once this point is reached the options for trustees are as follows.
- Restructure the operations, increase funding and cut back on costs. The key is to make operational changes as soon as the charity can foresee problems.
- Look to merge the charity with another in the same sector to increase scale and resources. This has been the route to safety for several charities recently and underlines the fact that often bigger is better.
- If restructuring or a merger does not look like it will bring an answer then taking specialist advice from an insolvency practitioner and a lawyer is vital. The trustees will need guidance through the processes to ensure that their actions cannot be criticised and that the requirements of the Charities Commission are met.
As ever the key is to take advice early so that the right solution can be found in a measured timescale, rather than having to react at the last minute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
