Statutory funding cuts are forcing many charities to overhaul their fundraising streams. As the funding environment evolves, so too must their ability to change and adopt new ways of working

Back in January 2010 the Institute of Fundraising (IoF) published the results of its fourth Managing in a Downturn survey. Although overall income anxiety levels among respondents had reduced, the government/statutory funding level had risen to 58.95. This was compared to 52.06 in May 2009.

While the comprehensive spending review had yet to be announced, there were rumblings in the press, and from industry commentators, that public sector cuts were inevitable and would have a knock-on effect on charities.

What was clear, was that respondents didn’t expect a drop in income until 2011, but needed to understand as soon as possible exactly what the impact would be and how they would cope if significant reductions occurred.

Already, 78 per cent of CFDG and IoF members thought that they would be affected by the cuts. Indeed, the number of charities that received income from statutory sources and expected cuts of between ten and 30 per cent had doubled, to 18.4 per cent.

In addition, 93 per cent of the charities that had responded to the survey had already experienced a reduction in real income levels – combined with an increase in demand for their services. Almost half (44 per cent) therefore intended to call on their reserves over the coming year, which raised concern over sustainability.

Despite this fairly gloomy outlook, discussion around alternative funding streams along with investment in fundraising activities and staffing created a more positive outlook for 2011. Albeit that there would be a challenging period ahead, which would force charities and fundraising teams to act quickly to ensure that their services – and livelihood – weren’t put at risk.

Cutting your losses

Fast forward to the present day, and the industry predictions weren’t too far off the mark. Statutory funding has been significantly reduced. Charities that rely heavily on funding from statutory sources have seen contracts and grant programmes come to an end as a direct result of reductions in public spending. The main regulatory bodies have all acknowledged the changing funding environment and are providing support services, best practice guidance and information on how to cope with the cuts.

According to Louise Richards, director of policy and campaigns at the IoF, the reduction in statutory funding will continue to have a damaging effect on many charities. “For some smaller charities, the proportion of statutory funding they receive represents around 66 per cent of their total income,” she says. “Where they have been very reliant on this source of funding, the effect is going to be felt severely – in particular, if they have to make cutbacks in staffing or redundancies.”

This problem has also been exacerbated with the public spending cuts, in that the demand for certain services has risen dramatically. Those charities that provide financial advice or support with housing issues, for example, will have seen increasing numbers of people who need their help having lost their jobs or been declared bankrupt in the worst cases.

In this month’s case study (page 12) Dave Thompson pulls no punches with his account of the impact on his charity, the Dorset Youth Association (DYA). Like so many smaller organisations, DYA has relied almost exclusively on statutory support for the past few years and now finds itself in a position where it is being forced to overhaul its business plan or risk running out of money. The charity has secured transition funding from the Office of Civil Society. However, it faces a tough job ahead in growing its community giving and other funding streams, which last year accounted for just 14 per cent of its total income.

But the problem doesn’t stop simply with cuts. The pot of funding that is still available will be out of reach for many of the charities seeking to benefit.

The first hurdle is increasing competition. Smaller, local charities are going up against a plethora of similar organisations offering, in some instances, almost identical services. Then, there are the larger national charities, which have regional centres.

The funding itself has also changed dramatically. The obvious point to make is that the amount of money being allocated has shrunk in many cases. Some bodies might be allocating the same amount of funds, but in smaller chunks, or to fewer programmes. Others will be actively seeking out contracts or service level agreements as an alternative to issuing grants.

Finally, those organisations that are still issuing statutory funding are now making charities work much harder for their allocation. Criteria and eligibility requirements have been tightened. As is the case with corporate giving, a scattergun approach to funding applications will not work. Now more than ever charities must carefully consider which bodies they apply to. This means aligning their causes with the objectives of the funding organisation, almost point by point. Research, due diligence and accuracy are the watch words for a successful application.

Coping with the cuts

The NCVO has responded with a number of packages, including advisory services on preparing for the cuts – and dealing with them once they become apparent. It has also launched the Voluntary Sector Cuts website, which enables charities to log details of their location and any cuts that they have received. This information is then plotted on a map and in a Google spreadsheet.

While this information is only a snapshot, compiled from the inputs of those that have take the time to visit the site and submit their details, it makes for interesting reading. At time of press the website lists 482 cuts, worth £75,341,527. The regions with the highest number of notes (although a large proportion are listed as unknown) are the east midlands, London and the north east of the country. According to Richard Piper, head of consultancy and innovation at NCVO, the site provides a rich source of learning, in terms of how and where the cuts have fallen.

In his work with the advisory and support arm of the organisation, Piper has noticed that fewer charities are requesting advice in preparation for cuts. Rather, they are seeking positive outcomes to any difficulties they face as a result of funding losses.

“The prevailing problem is that organisations have had their statutory funding cut and come to us to ask for help,” he says. “For every organisation, there are different solutions, but there are some common threads throughout.”

The first step is a complete assessment of the financial situation facing the charity. It’s vital that the business understands exactly what state it is in. Do the services it has to cut represent 50 or ten per cent of its offering? What is the scale, and relevance, of the cuts within the wider portfolio? Effective financial mapping is crucial.

Second, the charity must know exactly what it wants to achieve – strategic objectives. “This provides the guiding light, with which it can navigate its way through this change,” says Piper. “There will be some incredibly difficult decisions ahead, and without this clarity of purpose, those choices will be harder.”

For example, if a charity were to take a step back and assess the strategic importance of the services it has cut, it might find that they are not absolutely critical to the charity’s wider mission. Therefore, the cut actually represents a positive opportunity to return to its core focus.

Mergers and collaboration with other organisations also represent an opportunity. Both Piper and Richards advise charities to keep an eye out for potential partnerships – monitor any takeovers or services that have been cut by other charities, or could be shared, and try to fill those gaps. This also avoids duplication in services, which is beneficial in the long term.

Finally, of course, charities should take the opportunity to trim down any extra costs. While this may result in difficult decisions regarding staffing and redundancies, so long as such procedures are performed fairly, effectively and with the charity’s objectives at heart, they will be beneficial.

“Creativity, flexibility and effective leadership are all critical for success,” says Piper.

Alternative funding sources, as outlined by previous articles in this series, will ultimately be the lifeline for those charities that invest their time and resources sensibly. But in order to take advantage of these, there needs to be a paradigm shift in fundraising strategy and areas of focus.

Thompson at DYA has already come to terms with this. The money received from the Transition Fund is enabling the charity to conduct a full organisational review including analysis of all its existing and potential funding sources. With the resulting business plan, the charity will be able to establish the most effective ways of diversifying its fundraising activities.

The sector as a whole will need to remain agile and open to change, in this new funding climate. According to Richards, there is a varied picture in terms of how individuals charities will react to the financial challenges they experience.

“Some will have the appropriate resources and be equipped to deal with it, but others will be facing huge pressure to make up for losses in statutory income,” she says.

The IoF maintains that this climate represents a huge opportunity to invest in fundraising. That includes taking advantage of corporate partnerships, collaborations or consortiums  with similar organisations, shared services, bids for local funding and also tapping into the volunteer network. Of course, this is what underpins the government’s aspirations with big society and localism, so is a positive way forward.

Most importantly of all, fundraisers must keep one eye firmly on that concept of aligning their cause with every volunteer, bid or contract they approach. Richards also advises that often, the beneficiary can be forgotten. that link needs to be re-established and fundraisers must demonstrate exactly how their charity is making a difference.

For those charities that are competing for limited statutory funding, have lost services, or expect to see a reduction in this income, there will be difficult times ahead. However, there is a great deal of opportunity and effective, strategic fundraising should go a long way to bridging that gap.

This article first appeared in The Fundraiser magazine, Issue 5, May 2011