Charities’ response to current financial challenges

The chief executive of the Charity Commission recently warned that the sector would face a “test of leadership and resolve” as they emerge from the pandemic. But what if charities could see this as a huge opportunity to change how they work and put service users first rather than trying to sustain their organization?

Radical change could be inspiring. Many charity organizations have hardly changed in 30 years—maybe now is the time to base more decisions on data and evidence rather than feelings. Change isn’t just about flexible working or using Zoom; it’s about shifting power, becoming agile, and transforming what they do and how they do it. It will also need to be achieved against an increasingly regulated environment for the nonprofit sector.

In April 2022, CAF (Charities Aid Foundation) surveyed 547 UK charity leaders to identify their key concerns:

• 86% of charitable organizations worry about the effect the cost-of-living increases will have on those who depend on their services.
• 71% of charity bosses expressed concern over managing increased service demand.
• 59% are concerned that people will not continue or begin donating to their cause because of the cost-of-living crisis.
• Overall, 35% believe their organization will struggle to survive altogether.

These financial challenges are likely to get in the way of any planned radical change, so let’s look at these obstacles and what the charity sector can do about them.

Increasing scrutiny from a financial regulation perspective

A revised Charities SORP (Financial Reporting Standard (FRS) 102) is expected to apply to reporting periods on or after 1 January 2024, just two years from now. Charities will need to plan for these anticipated changes as FRS 102 applies to financial statements intended to give an accurate and fair view of a reporting charity’s financial position and profit or loss for a period. Finding accurate data for this could be a challenge for many charities when ensuring compliance and governance.

Fast access to accurate data

Business leaders within charities will need to be able to explain financial decisions quicker than ever, with openness and integrity. If a charity is to achieve its objectives, the leaders and trustees need to ensure that assets are properly used, its funds are spent effectively, and its finances are well managed. Having the right technology can mean the internal financial controls, essential checks, and procedures that help charities meet their legal duties to safeguard the charity’s assets can be handled in a way that identifies and manages risk and ensures the quality of financial reporting by keeping adequate accounting records and preparing timely and relevant financial information reports.

The economic climate

Today’s economic climate is putting hard financial pressure on the charity sector. Fewer donations are coming in as the cost-of-living crisis makes charitable givers around the world put themselves and their families first, resulting in a potential “cost of giving crisis.” For many, belt-tightening is not a choice. For most, disposable income has gone; for others, even the basics like rent, food, and heating are beyond affordable. Add this to less funding available for charities that rely on government support and shocking reports that a third of children in the UK and over 49 million people globally are now living in poverty, and the true depth of this worldwide disaster is yet another knock for charities.

Increased demand for services

The increased demand for service provision and the squeeze on income has created a ‘perfect storm’ for charities. For many, their resources are stretched after two years of supporting their communities throughout the pandemic, and they also have to find the funds to pay higher costs. With tightening household budgets impacting donations, there is a catastrophic situation facing the sector, and many may be unable to survive. It is vital that charities can monitor their financial performance, budget forecast effectively, and scenario plan for the future.

The need to be more agile

If charities are going to be able to quickly respond to change effectively, they are going to have to become more agile. They need better forecasting methods and the ability to run scenarios if they are to survive and thrive. An agile approach can positively impact a charity’s organization, leadership, and skills. Digitalization is at the heart of this mindset as charities look to pivot their operations from in-person services and fundraising to digital activities. The more agile an organization is, the happier staff and service users are, as it gives them more choice over when and where they carry out tasks. This also benefits charity finances, with less focus on bricks and mortar and more on the vital work the organization carries out. Becoming more agile through a digital transformation will mean a culture shift for many organizations, but the benefits will give charity leaders and staff greater choice about the activities they carry out, looking at when they work, where they work, what they do, and who they are working with.

Fast, accurate decision-making

It is vital that charities make good decisions with confidence in their data, given the increased scrutiny on their finances. We’re more connected to smart technology than ever before and demand more personalized, seamless experiences across every single touchpoint. Charities and nonprofits aren’t immune from this, and delivering a seamless experience to supporters and providing accurate financial information and reports requires good quality data as a fundamental starting point. Good data gives security when it comes to compliance, improves reputation and supporter experience, builds more efficient day-to-day operations, supports regulatory efforts (such as data privacy), and paves the way for future innovation.

Why charities need to embrace digital transformation

Digital transformation provides charities with a way to become more responsive to change by better tailoring their services to the individual. Cloud-based solutions for financial planning, analysis, people, and procurement offer a cost-effective alternative to expensive on-site IT infrastructure and do away with outdated legacy systems and manual paper-based processes. Services are managed remotely, removing the associated maintenance costs and allowing people access to essential data over the internet. As these services are scalable, charities only pay for what they need, cutting costs of redundant storage, which is a massive help for organizations struggling with limited resources.

In addition, the cloud offers robust cyber security. Solutions providers have the resources to protect multiple organizations’ data across their network, so charities can be sure that their data remains secure. Digital transformation is a necessary step for charities to prepare for the future. It’s important to remember that digital transformation is a process rather than a one-off project. Some digital strategies may take years to implement, but charities can approach them as small steps that will gradually engage supporters and improve the organization over time. It helps to raise greater funds, provide better services, increase trust and transparency for compliance, and generally improve efficiency and productivity.

How Unit4 can help your organization

Increasing financial resilience and closely monitoring income levels will be vital going forward for all charities. Technology and utilizing your data will help achieve this. 

With Unit4’s ERP, HCM, and FP&A software systems, you can adapt and optimize the way your people work to help you manage complexity and focus on the things that matter. Unit4’s next-generation smart ERP software solutions are built for people in the business of helping people. With us, you can ‘Experience Real Purpose’ with an adaptable solution that’s right for you, now and in the future.

To discover more, click here to book a demo and see what our ERP solution can do for your nonprofit organization yourself.