Seven factors could help voluntary organisations succeed in the face of a tough funding environment.
Public funding cuts, reduced donations and rising costs – charity budgets have been coming under attack from all sides. The funding landscape has shifted significantly in the past few years. As organisations come to terms with the new reality, it's evident that financial sustainability is the key to survival.
Unlike the banks, charities that fail are unlikely to receive government support in the national interest. While some may be able to rely on their reserves temporarily, in the long term they will have to find new sources of income, new ways to deliver services and reduce costs – whatever it takes to balance the books.
The challenges facing the sector and the potential for financial collapse in the wake of funding cuts should not be underestimated.
On the other hand, the voluntary sector can take heart from organisations that have come back from the brink and gone on to thrive. There are also inspirational leaders who have helped their organisations to adapt and avoid impending financial crises. These success stories can teach us a lot about what charities need to survive right now.
Even where charities need help to put in place a turnaround strategy, having the right attributes and approach makes a turnaround strategy all the more likely to succeed. On the following page are some of the factors that many successful organisations have in common and the lessons that can be learnt from them.
Be prepared
Have a back-up plan in place. Organisations that have survived major funding cuts are those that have anticipated the problem in advance. They have made decisions and put their contingency plans into operation, whether cutting back provision and overheads or supplying alternative services.
Be realistic
Ensure your back-up plan is practical and workable. It's not unheard of for a chief executive to lead an organisation down a blind alley by pursuing an alternative vision based on a false premise. The use of an independent third party to review assumptions may incur short-term costs, but can help to avoid much bigger problems down the line.
Get a grip on the finances
Robust financial information and strong budgeting processes are key to avoiding insolvency. Understand the cost and benefit of your services. Successful organisations also have proper corporate governance in place to ensure that what they do is always aimed at achieving their objectives.
Look for service efficiencies
Don't make the simple mistake of cutting services if you can make them more efficient instead. Mergers and shared services offer major potential for efficiencies and can be the right solution for many organisations, but make sure you choose the right partners.
Develop the right mindset...
Charities need to be commercially aware, as do the individuals within them. Having staff that are flexible and understand the economic realities, while maintaining a caring approach, can make all the difference to success or failure.
...but strike the right balance
While charities and the private sector can learn from each other, by definition charities exist for social or benevolent goals and the wholesale adoption of private sector values is simply not appropriate. Successful charities have a strong awareness of the commercial environment, but also manage to maintain a clear focus on the service they want to supply.
Leadership is key
Successful organisations nearly always have strong leaders, whether an individual or a board of trustees. Effective leaders have a clear vision, can communicate that vision to staff and achieve a consensus. They have a clear focus on the road ahead; are compassionate, but aware of the commercial environment; they understand the need to generate surpluses to be sustainable, but are happy to dip into them on occasion to invest in the future – and they constantly seek ways to improve services.
The voluntary sector has an essential role to play in UK society in the future. Organisations that adapt and survive in the difficult years ahead are likely to emerge all the stronger and ready to seize future opportunities for growth.
This article first appeared on The Guardian's Voluntary Sector Network website on 12 July 2012
Click here to view Newsletter in full.
Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
The word partner is used to refer to a member of Smith & Williamson LLP.
Details of the licensing bodies for Smith & Williamson insolvency practitioners can be accessed at: http://www.smith.williamson.co.uk/insolvency-licensing-bodies