Paul Struthers, Managing Director, Sage, UK and Ireland, highlights how funding has been a systemic problem the charity sector has faced, but to ensure its longevity, it needs financial tools, digital skills and talent
What has been clear as we approach the first anniversary of lockdown, is that it has been those in our most vulnerable communities who have been pushed closer to the brink.
As families looked to their communities for support beyond which the government is capable of giving, non-profit organisations (NPOs) have witnessed a huge increase in demand for people’s most basic needs, like food and shelter, stretching their resources to the limits.
But more alarming, the increase in demand for these services is in stark contrast to the decline in funding these non-profits have received. The fragility of the sector has been highlighted in Sage Foundation’s NPO Success research, which revealed that one in three non-profits expect their funding to be reduced by up to half compared to last year, putting more than two-thirds at risk of going into administration.
In a normal year, NPOs would ordinarily receive income from multiple sources. Last year, however, funding dropped across all these channels – with just 11% receiving the majority of their funding from public fundraising, a significant drop in comparison to the previous year.
In short, 2020 was an almost total wipe-out for the third sector. The industry had a predicted £12.4 billion loss in income, with more than 60,000 job losses, all compounded with a significant increase in demand for their services.
In a positive move, the Chancellor announced a much-welcomed extension of certain schemes, including the furlough and the introduction of the Recovery Loan Scheme, that will provide some cushion to the rise of unemployment and poverty in the short-term. But the journey to long-term recovery will be far greater.
These measures will just delay what’s already expected to come. And non-profits will be taking the brunt of this if they are not well equipped to undertake work in the long term – with as many as 72% already admitting to not being able to deliver projects in the next year.
The sector needs to be propped up – with skills, not just cash
Propping up the non-profit industry will be at the heart of our economic recovery. As such, the sector needs a complete overhaul in its current approach. This means looking beyond the hope of a miraculous cash injection and instead addressing the factors that make the sector inherently unstable.
Despite it proving a more challenging time than ever before, the last year has been no exception to the norm. There is a systemic problem with funding to the third sector.
Through our experience with NPOs, it has become evident that many lack the fundamental skills to manage their finances efficiently. Our research revealed that over two-thirds of NPOs admit they don’t have the planning and pitching skills necessary to access new funding.
And to address this gap, the industry needs to be upskilled with the most essential financial skills that will help them to better allocate and manage resources – improving efficiency, reducing costs and eliminating errors.
Supporting the industry with administration, finance and digital tools will be critical for its employees to not only undertake, manage and deliver projects but also to secure new funding streams.
A digitally savvy sector will open new doors for engagement
A further concern is that while the pandemic triggered the digitisation of many businesses, non-profits largely fell through the cracks, lacking the resources to embrace digital transformation.
However, we’ve seen that online platforms can be instrumental to non-profits. Those who have had to pivot their outreach and engagement with communities to include new online forums have benefited from an increase in online engagement, proving further the need to include digital networking such as through social media as part of NPOs engagement strategy.
According to our Not-Profits Tech Trends Report, of those NPOs that did incorporate social media in their community outreach, 62% recognised increase in engagement, as well as an increase in online donations, the number of individual donors, and the size of donations.
Taking advantage of social media will only help NPOs connect and engage with their donors and recipients, as well as deliver projects in creative ways.
Those organisations that have been able to incorporate online channels, embrace virtual communities, including online forums, hosting webinars and virtual events – and include social media plans in their strategy will be better placed to weather the Covid-19 storm and benefit from new streams of income in the long-term.
The pandemic has made non-profits face a critical conundrum: an increase in demand for its services but a sharp drop in cash. Whilst the impact of this on many essential services has been devastating, the fact remains. They are essential. The question now is how we protect the third sector while ensuring NPOs have the funds to thrive and their staff the skills to drive innovation.
Upskilling the industry with vital digital and financial literacy skills will be crucial for its longevity, ensuring charities will continue delivering their projects by maximising impact at a minimal cost.
