There is talk of a loss of resilience in the charity sector. Soaring operating costs and increased levels of demand are slowly but surely taking their toll, and it’s sparking widespread concern. One in five charities recently surveyed by the National Council for Voluntary Organisations report they could be forced to close their doors this winter. Almost one-quarter have plans to reduce their services as a result of the crisis.
Talking to a number of charity leaders recently, a common question is, “Do you think things are different this time?”
It’s true that many small charities bob along in state of perma-crisis: they are always overstretched, and there is never enough money. Yet somehow they keep going. Many will weather this latest difficult operating environment as well. But, if I’m honest, I do worry that over the next twelve months the sector could be in for a period of reckoning, before things start to settle.
So, what are the early signs your charity might be in more serious organisation distress? Below, I set out the five key signs your small charity is in trouble and why you should always watch out for them and act. Effective leadership is crucial because decisive action will give your charity the very best chance of overcoming adversity. Even in the worst-case scenario of your charity’s imminent closure, being strategically smart and making sound decisions will ensure continuity of provision for the cause you serve.
Five signs your small charity is in trouble
1. Ongoing financial instability. If your charity is continually struggling to pay regular bills, and can’t balance its budget, take heed. If you’re at risk of the charity’s reserves falling below three months’ operating costs, that should be a red flag.
2. Low morale among staff and volunteers. Your team's morale is your charity's heartbeat. A spike in absences, hushed conversations, or a general drop in team spirit, could signal deeper issues.
3. Loss of impact and effectiveness. Are you noticing reduced numbers of supporters at your fundraising and community events? Diminishing partnership opportunities with other charities? If there are signs that your charity is generally losing visibility on the sector landscape, don’t ignore this sign of decline.
4. Non-compliance and legal slip-ups. Have you been late filing your organisation’s accounts? Legal and regulatory compliance is non-negotiable, and remember this is not just about standard obligations to the Charity Commission, but also about keeping on top of health and safety regulations etc. Any slip-ups here can be damaging.
5. Lack of public perception and awareness. Public perception shapes your charity's ability to garner support. Does it seem you are often reading about other charities’ successes and news, but struggling for your own organisation to be seen and mentioned?
For small charities, one or more of the above should be viewed as distress signals and that your organisation may be in serious trouble. The next steps could be crucial, and that’s all about assessing the level of danger honestly, finding the right balance, and making informed decisions.
Engage with your stakeholders and seek professional advice
You don’t need to start any alarm bells ringing when you have spotted signs that your small charity is in trouble. Depending on which problem(s) you need to address, use the opportunities provided at staff workshops, board meetings, or get professional advice, so you can carry out a deep dive of the issue(s). Use my Tools for Charities to check out different exercises that can help you with this, including the ‘Five Whys’ exercise.
Also, be prepared to seek and pay for external professional advice. And feel positive about the cost involved: this should be regarded as an investment in your organisation’s future, not an extra expense you can ill afford. When it comes to big picture issues, there’s nothing like a fresh pair of expert eyes to see a financial hole for what it is and shake people out of harmful complacency. An outsider is often well placed too to spot solutions that previously you might have thought unthinkable.
Reach out to local funders
Many small charities wait too long to approach local funders for help. We wait because we believe others will view it as a sign of failure and worry about the potential damage to our organisation’s reputation. Well, here’s where we need a reality check. This isn’t about failure, it’s about acknowledging that your charity is in trouble. That could be to do with events quite outside your control. Understand that the sooner you ask for help, the much likelier it is that any financial support is going to work. Further, think about it from the funder’s perspective: aren’t they more inclined to offer funding to a charity when they believe their support is going to make a positive difference, rather than to a charity they suspect is beyond the point of saving?
I sit on the board of a grant-making trust, so let me share with you what I and my fellow trustees would discuss if a local charity came to us for help: 1) How did the financial shortfall happen? Has the charity set out clearly and honestly what has led to the crisis, along with the current challenges they face? 2) How competent is the charity board and its exec? Is any grant we may offer going to be in safe hands? 3) What level of funding support is going to turn the situation around? Your charity should already have worked this out and judging whether your numbers are trustworthy will be a determinant in the decision.
Be prepared to make tough decisions
I would venture that a fast merger is probably a take-over by another name. It’s usually triggered by one charity in serious financial difficulty, and another eyeing an opportunity for expansion. If your organisation can’t cover its costs and that’s an ongoing problem, it may well be that the only way you can save local services for your beneficiaries is to enable a take-over by another charity. This is when you have to put mission ahead of your own charity’s survival, and see success as the continuity of provision, by whichever organisation is best positioned to deliver that.
Successful mergers – and by that, I mean where both sides emerge as winners - take time, even years, to do well. When you approach the idea from a position of near insolvency, it’s a gamble and one your charity is unlikely to come through well. The truth is that mergers are best done from a position of strength, not weakness. They are also best done with organisations which have experience of working together, and staff and trustees know and like each other.
I have been involved in charities that have been approached out of the blue by another organisation with the idea of a possible merger. It raises questions. Even more so if you attend an initial meeting and it is clear the other side’s trustees are not being entirely open about their charity’s situation. If you’re looking for your organisation to be rescued by any means possible, then at least show respect to the other side by being as open as possible before you ask for help. Any kind of game-playing when your organisation is at risk of collapse simply poisons the atmosphere before a meaningful discussion can begin.
Whether you want to call it a merger or take-over, reaching out to a stronger charity for help can be a positive move. See it from your charity beneficiaries’ perspective, that services continuing and even thriving again under a stronger charity is better than stagnating or even declining under a weak one. In addition, for the benefit of your staff and volunteers, entering talks with a possible partner as early as possible is more likely to secure at least some roles for the future, and avoid the drastic cost-cutting that can accompany last-ditch attempts to save an organisation.
These are trying times for small charities. Vigilance is key. Recognising warning signs early and taking decisive action can steer your charity back to stability. Remember, reaching out for help, assessing your situation candidly, and considering strategic alliances, are not signs of failure but of resilience and commitment to your cause.
Lastly, if you’re looking for some guidance about this or any other matter relating to your small charity, don’t hesitate to get in touch. Click here to drop me a line.
Jenny Hopkins is the founder of The Boiling Frog. Having spent the earlier part of her career in publishing, she switched to the charity sector and became CEO of a local deaf charity. Over a period of ten years, she is credited with transforming it into an award-winning organisation and trusted partner of local health and social care statutory bodies. She has since stepped back from that role to embark on a PhD about the impact of marketisation on deaf charities, alongside mentoring other CEOs of small charities. She uses The Boiling Frog blog as a way to reflect and challenge her own experience and perceptions about the role of charities in society today. She is also Vice-Chair on the boards of two charities.