We’re busy analysing our feedback and other data to produce the next Charity Mentors Oxfordshire Impact Report (coming soon!). We’ve already noticed that a common issue that crops up for our Charity Mentors is that of financial resilience. Many charities and voluntary organisations feel their situation is quite the opposite – an almost permanent state of financial precariousness! And even if current funding for your organisation looks reasonable, it takes an act of boldness to take on more costs or more commitments in order to expand the organization and take that next step.
But what do we mean by “financial resilience”? If it means the ability to keep going for some unspecified time into the future, you only have to walk down the high street to see that this is not guaranteed for any organization whether commercial or third-sector, large or small. Small independent restaurants in Oxford pop-up and, often as not, pop-down. And large organisations are as vulnerable as small: Carillion, Toys R Us, and Pound World are just a few of the big names that have disappeared over the last year or so. Personal insolvency was at a 6-year high last year (https://bit.ly/2v18Rbc). No organization is so successful, so powerful or so dominant that it can guarantee it’s existence. Resilience is about building defences against shocks which hit the organisation and force it off its trajectory.
What makes financial resilience even more challenging for many third sector organizations is that they are reliant on relatively few sources of revenue, so if they lose one of them, it can be disastrous. They are not dissimilar to many commercial organizations who rely on one large customer for their revenue. The idea that any organization can guarantee its financial sustainability is a myth. But making your organization less exposed to the risk of financial melt-down is achievable.
What would be top of your list of the things that you require to make your organization more financially resilient and robust? We discussed this at a recent meeting of our Charity Mentors and this was our Mentors’ “top 5”. How does it compare with your own thoughts, and is this where your focus truly lies today?
1) Governance and strategy: The overall responsibility for financial resilience is ultimately with the board but, in reality, it has to be a shared responsibility, so the management team must share in its building and delivery. The important thing is that financial resilience and sustainability should not be abdicated to the CEO/manager or a “fundraiser”. There needs to be financial competency and clarity around the offering/story/strategy.
2) Financial literacy embedded in the organisation: It’s important that everyone understands the numbers and that some key metrics are chosen for closer investigation. It takes more than a cursory examination of the budget at board meetings. How much does it cost your organization just to keep the doors open (core costs)? What are the costs of each separate project/activity? Is there one activity that is being heavily cross-subsidised by others? If the organization had to close, how much would it cost to give your staff the time to look for something else and for beneficiaries to make alternative arrangements (reserves)? Is there a Plan B to manage the risk of anticipated events not turning out the way you had hoped?
3) Real partnerships and strong relationships: Develop and nurture relationships with funders, potential funders and partners. Be proactive. Give feedback. Keep them informed and show them that you can give them a return on their investment in you. Build a partnership where possible and go beyond what you are asked for. Keep them close. They are looking for causes that interest and inspire them. Make your pitch bespoke and think about “why us?”. If you get turned down, consider going back. If you get one-year’s funding, consider asking for 3 (whether it is offered or not).
4) Diverse sources of funding and efficiency in delivery of services: Look for diverse sources of funding if you can but don’t continually reinvent yourself so that you “chase the money”. Partnerships and alliances can be a creative way of sharing financial risk. Think carefully about cost efficiencies in delivering services – be realistic about what you are able to offer. Be bolder in asking people to pay for services, it doesn’t necessarily mean asking beneficiaries to pay although you need to explore all options – think creatively about generating revenue from the services of the charity.
5) Think it through!: And, maybe we would say this, but get yourself a mentor so that you can talk through how you are approaching the challenge of building resilience and managing risk – that you are not missing something important – and that you are focusing scarce resources on what is important and you can do more than survive, but actually thrive, and maybe take the next step!