Mixed Income Economy Innovation Assets Mission Based Maximising Assets Social Enterprise Not-for-profit Income Sustainability Resilience Taking the Pulse of the Small Charity Sector September to November 2017 18th Edition
Background of Respondents Geographical spread East London 27% Scotland Midlands(E&W) 8% North(NE & Y&H) 1 North West 1 Scotland South East South West 1 16% North ( Inc. NE & Y&H) Wales 0 5 10 15 20 25 30 North West Wales Midlands East (Inc. East Midlands & East) London South West South East Cause type Where services are delivered National 19% International 16% Regional 1 Local 50% 2 Children & Young People 19% Education 16% Community 16% Health 1 Disability Arts & Culture Environment Sport Homelessness Animals Religion 0 5 10 15 20
Regional Data Summary Results from September to November 2017
National Data Summary: September to November 2017
Contents Foreword 1 Income Generation 2 Service Delivery 3 Workforce 4 Governance 4 Actions 5 Emerging Trends: Cyber Security 6 Brexit Temperature Check 6 Quick Analysis 7 Methodology 16 Pauline Broomhead Olivia Lam
Foreword Pauline Broomhead, Chief Executive, FSI There is little doubt that the increased demand for services has put a strain on small charities, especially those delivering social care outcomes but more generally all local charities providing local support. The pressure on small charities and community groups is compounded by the tough financial climate. The consequences of these two factors coming together create an unstable financial environment in which to operate. In order to solve the most urgent challenge, demand for services, leaders and trustees of small charities and community groups have the added pressure, outside of delivering services, of creating time and allocating resources to focus on their most important challenge: ensuring greater financial stability for the future. The challenge for government and infrastructure organisations therefore is how to support more small charities and community groups to be stronger, more resilient and resourceful, at the same time as they continue to report workload as their most urgent test. There are initiatives out there and at the FSI we truly believe that it is important for all small charities to take a good look at the opportunities they have in income generation. A mixed income economy is something we have championed since our inception in 2007 and we still believe that all small charity leaders should look closely at how they can raise the funds to make them sustainable. This doesn t happen overnight but you can work towards a solid mix of income in a planned and measured way. You will read in this report how income from voluntary and statutory sources are declining or flatlining but these are not the only two sources of income to some, not all, small charities. We urge small charities to look at how they enterprise their mission. Now, more than ever, small charity and community group leaders need to be entrepreneurial, as we have said many times through the Small Charity Index, the charity world is and has changed and become increasingly more complicated. Those leading small charities know that funding cuts will continue, that there is a rising demand for all sizes of charities to demonstrate clearly their impact and social return on investment, that there are new forms of competition from the for-profit sector, and in the press there are serious questions about the effectiveness of how charities operate. All of these challenges are opportunities for social entrepreneurs, which is what small charity and community group leaders are to search out more innovative solutions that lead to sustainable improvements, to experiment with a market-based approach to funding social issues by exploring commercial methods of generating income. Each small charity and community group leader will have to think about what is right for them, but exploring if you are able to maximise income from your current services by finding new and able to pay markets or maximising current assets both physical and/or intellectual through a new venture is crucial. In this quarter s report, yet again Earned Income shows the biggest increase in income but still, only a very small number of small charities and local community groups are exploring this type of income generation. I urge small charity and community group leaders to explore earned income as an opportunity to build sustainability into the financial resources of their not-for-profits. 1
Index Results: September, October, November 2017 Detailed Analysis Income Generation Voluntary income Many small charities and community groups rely heavily on voluntary income as their primary source of financial support to deliver services. The generosity of people in the UK is consistent and reliable, however, across the UK the level of voluntary income donated to charities through a variety of sources remains static with 9.7 billion donated in 2016 on a par with 2015 1. Between September and November 2017, voluntary income remained static for nearly half of small charities and community groups (48%) (Figure 1). Only 1 reported increases above 10% and one in five charities (2) experienced a decrease in the same period. With only a total growth of since June 2013, this suggests that voluntary income does not sufficiently offset other funding shortfalls. A regional perspective The Midlands and North West have seen a increase in voluntary income this quarter, while Scotland experienced a decrease of and East and South West experienced a decrease. Statutory income Local authorities commissioning services are under pressure to achieve savings which often means commissioning larger charities or, more often, large for-profit companies to deliver contracts. Small charities need local authorities to ensure that commissioning processes are proportionate to the size of the contract, thereby creating a more favourable environment in which small charities are able to bid for local contracts. Despite process and engagement barriers, between September and November 2017, statutory income levels remain unchanged for the majority of small charities (8) (Figure 2). Only reported an increase, a drop from 1 in the last quarter, while 10% reported a decrease in statutory income over the same period. Small charities and community groups report an 1 drop in statutory income overall since June 2013. A regional perspective This quarter, the East and North West regions experienced the greatest decreases in statutory income, of and respectively. Earned income Faced with these financial challenges, small charities and community groups are attempting to diversify income streams to overcome the challenge. A growing number of small charities and community groups are exploring diverse funding models, such as mission-based enterprises. The number of smaller charities looking to this source of income is as yet small, however, with the highest growth rate across all three income streams (voluntary, statutory and earned), earned income could be the small charity sector s most important type of sustainable funding. 1 Charities Aid Foundation (2017) CAF UK Giving 2017: An overview of charitable giving in the UK [https://www.cafonline.org/docs/default-source/about-us-publications/caf-uk-giving-web.pdf] 2
Between September and November 2017, nearly a fifth (19%) of small charities and community groups reported an increase in earned income (Figure 3). Overall, the Small Charity Index has reported a total increase of 1 in earned income since June 2013. A regional perspective The greatest increases were in the Midlands and South East, which saw a rise in earned income this quarter. Service Delivery Demand for services The small charity sector is known for being made up of locally-led organisations that are deeply rooted within their neighbourhoods. Indeed, more than half of the respondents (5) to the Small Charity Index would describe their services as being delivered within their local community. Yet alongside this, small charities and community groups face increasing pressure to fill the gap in service provision, most acutely as a result of central and local government funding reductions, introduction of the welfare reforms and lower incomes of households. This has resulted in nearly two thirds (6) of respondents reporting an increase in demand for their services between September and November 2017 (Figure 4). In the same period, 28% reported increases in demand of more than 10%, while only reported a decrease in demand for support. These results highlight the continuous rise in demand for small and local charities and community groups services, with a total increase in demand in services more than double by 12 since June 2013. A regional perspective Small charities and community groups across all regions experienced an increase in demand for services, with the North West reporting the greatest increase of 1, and the South West reporting a 1 increase. Confidence in a small charity s ability to meet the demand for services With the demand for small charities and community groups services showing no signs of subsiding, many respondents to the Small Charity Index are nevertheless optimistic of their own organisation s ability to meet the demand. Three quarters of respondents (7) stated they feel confident to a lesser or greater degree that they will be able to continue to deliver their services over the next 12 months (Figure 5). A regional perspective The confidence of small charities and community groups working in Wales and the Midlands reported to be the highest at 76% and 7. Working in collaboration At a time where small charities and community groups are competing for limited resources and attempting to meet increased demand for their services without additional funding, it would seem crucial that small charities reach out and collaborate with each other to relieve the strain on their limited resources. However, whilst results from the Small Charity Index show that 79% of small charities and community groups report to be working in partnership with other charities (Figure 6), only a fifth (20%) of small charities and community groups are collaborating at a meaningful level, i.e. undertaking more than 30% of activities in 3
collaboration with others (Figure 7). This low level of collaboration needs to increase as when charities with a common aim work together, they are able to learn and share new skills, improve outcomes for their beneficiaries, build resilience and improve their long-term sustainability. Workforce Staff and volunteer recruitment and retention Results from the Small Charity Index show positive staff and volunteer retention rates in small charities. Staff numbers have remained relatively stable, with 68% of small charities and community groups reporting no change in numbers, while 2 have indicated an increase (Figure 8). Many small charities and community groups are volunteer- led, with volunteers often working directly with service users. Over a third of respondents (36%) reported an increase in volunteer numbers between September and November 2017 (Figure 9). The Small Charity Index has seen a steady rise in volunteer numbers, with a total increase of 37% since June 2013. A regional perspective This quarter, London, Scotland and the South East saw the largest increase in volunteer numbers, by. Challenges Many leaders of small charities and community groups face a capacity crunch as they attempt to tackle the pressure of meeting a rising demand for their services with static income levels. With the need to address dayto-day operation matters, the top challenge facing respondents remains to be workload (29%) (Figure 10). The second most selected challenge is funding (2), followed by demand for services (17%). Staff motivation Working under such pressures might suggest diminished staff well-being, however, morale remains high amongst the workforce, with small charities and community groups optimistic in their ability meet the challenges. More than three quarters (78%) of respondents report staff motivation as good to excellent between September and November 2017 (Figure 11). Governance The stark reality is that as a trustee the buck stops with you and your fellow trustees. As the FSI has highlighted many times, the role of the trustee is changing and many trustees are questioning whether the pressures have become too burdensome. To support our members, the FSI have produced a series of six short videos which we hope will be used by trustees to support them in their governance role 2. Reserves The majority of respondents to the Small Charity Index (80%) report to hold reserves (Figure 12), however more than a third (3) of those holding reserves report to have used reserve funds to compensate for income shortfalls over the quarter (Figure 13). The remaining 20% of small charities and community groups find themselves in a risky situation operating without reserves, raising concerns about their financial viability. 2 View these at: http://www.thefsi.org/services/essential-trustee-series/ 4
Trustee confidence Respondents to the Small Charity Index were asked to determine how likely it would be that their charity would face closure in the following 12 months, 4 reported that it is not at all likely (Figure 14). Yet during a time when communities are increasingly relying on charities for support, on a scale of 1 to 10, with 10 being very likely, 2 selected between 5 and 10. Investing in development Combining all the above factors, it is not unpredictable then that only of small charity and community group trustees report to be fully confident to take up opportunities for development, outside of their current business plan, that carry a financial risk (Figure 15). Potential actions arising from this quarter s Small Charity Index 1. Small charities and community group leaders need to take stock and consider what a mixed income economy would look like for their not-for-profit. The Small Charity Index clearly shows that the fastest growing area of income generation is earned. By this the FSI means: enterprising your mission and whilst this won t be the answer for all small charities and community groups this type of opportunity should be explored along with voluntary and statutory sources. 2. The most important challenge facing small charities and community groups is meeting the demand for their services. a) Results show a continuous rise in demand for small charities and community groups services, with a total increase in demand in services of a significant 12 since June 2013. At this time small charity and community group leaders must think carefully about the well-being of their staff and ensure that they are coping with the pressures of increased service delivery, especially when workload has risen to the single most important challenge small charity and community group leaders face. b) Now is also the time for all small charities and community groups to look at collaborating as extensively as possible to relieve the strain on limited resources. At a time where small charities and community groups are competing for limited resources and attempting to meet increased demand for their services without additional funding, it would seem crucial that small charities reach out and collaborate with each other to relieve the strain. Results show that only 20% of small charities and community groups are collaborating at a meaningful level. More needs to be done as through collaboration we will learn and share new skills, potentially improve outcomes and build resilience and sustainability in our not-for-profits. 5
Emerging Trends Cyber Security The volume of digital communications has exploded in recent years, and has been accompanied by a huge rise in public awareness of the importance of staying protected online. In partnership with the National Cyber Security Centre, we would like to understand what small charities are doing to keep themselves safe online. Results Small charities and community groups are split in their confidence in respect of the security of their organisation s IT, with 3 reporting to be confident and 3 reporting to be slightly concerned, while only report to be fully confident in their IT security (Figure 16). In the months of September, October and November 2017 only of respondents reported to suffer a computer breach, unlawful access or data loss (Figure 17). The majority of small charities and community groups (6) state they currently include IT security and data protection in their charity s risk register (Figure 18). Nevertheless, only 20% have carried out any cyber security or information security awareness raising activities for staff or volunteers over the same period (Figure 19). The risk of experiencing a security breach is reflected in the 4 of small charities and community groups who have plans to improve the security of their organisation s IT (Figure 20). Brexit Temperature Check Through the quarterly Small Charity Index, we are keeping a general overview of how small charities and community groups are feeling about and dealing with the post-brexit vote. More than a third of small charities and community groups (39%) stated they were not at all confident about the future on the day after the Brexit vote, and only stated they were fully confident (Figure 21). Over the 18 months since, the proportion of those who continued to be not at all confident fell to 29% (Figure 22). Those who were fully confident remains low, at, which leaves 69% of small charities and community groups uncertain about the future. When asked whether they felt the government has provided opportunities for small charities and community groups to represent the views and issues of their beneficiaries to provide input into the Brexit debate, 98% responded negatively (Figure 23). Respondents were asked if they had any suggestions on what the government could do to provide such opportunities, the majority suggested having a platform made available to create an open dialogue to debate, discuss and feedback on the issues. National, well publicised drive for groups to comment and feedback, possibly online, possibly through a third party. With a grant available to charities who could support this process. Government should enable facilitation and consultation of charity focus groups so charities are able to discuss concerns etc. We need to either have a summit about the issues affecting charities or, if not possible, a survey that would help to identify the key concerns. Respondents also highlighted the importance of engaging with grassroots level groups and having transparent, comprehensive information available, which could be achieved via umbrella groups or infrastructure 6
organisations: More consultation opportunities on a local or regional level would have been beneficial. Whenever consultation is done it s always in London and often for small charities this is cost prohibitive to access. Issue detailed breakdown of what Brexit means for different sectors of the economy, and how it will affect people, and ask for comments and suggestions. By being more open and transparent about long term plans, suppliers and partners will have a more realistic information base on which to make judgements and so reduce risk. Quick Analysis Income Generation (1) We asked in the three months September, October and November 2017 has your statutory income increased, decreased or remained unchanged? 0% 8 8 of small charities reported their statutory income levels remained unchanged. (2) We asked in the three months September, October and November 2017 has your voluntary income increased, decreased or remained unchanged? 48% 2 of small charities experienced a decrease in voluntary income this quarter. 1 7
(3) We asked in the three months September, October and November 2017 has your earned income increased, decreased or remained unchanged? 10% 7 19% of small charities experienced an increase in earned income this quarter. 2 + Decrease 16-2 Decrease 11-1 Decrease 6-10% Decrease 0- Decrease Unchanged 0- Increase 6-10% Increase 11-1 Increase 16-2 Increase 2 + Increase Service Delivery Demand for services (4) We asked in the three months September, October and November 2017 has your charity seen the demand for services increase, decrease or remain unchanged? 0% 0% 3 16% 19% 1 1 0 5 10 15 20 25 30 35 2 + Decrease 16-2 Decrease 11-1 Decrease 6-10% Decrease 0- Decrease Unchanged 0- Increase 6-10% Increase 11-1 Increase 16-2 Increase 2 + Increase 6 of small charities reported an increase in demand for services this quarter. 8
Confidence in a small charity s ability to meet the demand for services (5) We asked taking everything into account, how confident do you feel about your charity s ability to deliver its planned level of services over the next 12 months? Base: All individual respondents (n = 340) 10 Fully confident 16% 9 8 7 19% 6 5 1 4 2 9% 9% 7 of respondents reported they are confident to a lesser or greater degree that they will be able to continue to deliver their services over the coming 12 months. 3 6% 2 1 Not at all confident Working in collaboration (6) We asked does your charity work in partnership with other charities? Yes 79% No 2 (7) We asked the charities that answered yes, what percentage of your services during the three months September, October and November 2017 were delivered in partnership? 40% Only 20% of small charities are collaborating at a meaningful level i.e. undertaking more than 30% of activities in collaboration with others. 20% 1 1 0-10% 11-20% 21-30% 31-40% 41-50% 50+% 9
Workforce Staff and volunteer recruitment and retention (8) We asked in the three months September, October and November 2017 have your paid staff numbers risen, fallen or remained unchanged? 68% 9% 68% of small charities report their staff numbers remain unchanged over the current quarter. 2 + Decrease 16-2 Decrease 11-1 Decrease 6-10% Decrease 0- Decrease Unchanged 0 10 20 30 40 50 60 70 80 0- Increase 6-10% Increase 11-1 Increase 16-2 Increase 2 + Increase (9) We asked in the three months September, October and November 2017 have your volunteer numbers risen, fallen or remained unchanged? 0% Over a third of small charities (36%) reported an increase in volunteers this quarter. 2 + Decrease 16-2 Decrease 11-1 Decrease 6-10% Decrease 5 16% 7% 6% 0 10 20 30 40 50 60 0- Decrease Unchanged 0- Increase 6-10% Increase 11-1 Increase 16-2 Increase 2 + Increase 10
Challenges (10) We asked in the three months September, October and November 2017, which of these issues has presented the greatest, second greatest and third greatest challenge? Workload continues to be the most pressing concern to small charity leaders this quarter, selected as the greatest challenge by 29% of respondents. 30 29% 29% 25 2 20 17% 18% 15 10 7% 1 10% 1 6% 1 7% 10% 1 1 1 9% 1 9% 1 6% 5 0 Workload Training Investment Retention Cashflow Demand Funding Motivation Recruitment Staff motivation (11) We asked on a scale of 1 to 10 how would you rate the current motivation/morale of your staff? Base: All individual respondents (n = 337) 0% 0% 1 6% 6% 18% 27% 10% 1 78% of respondents reported staff motivation as good to excellent over 1 Very Poor 2 3 4 5 6 7 8 9 10 Excellent the current quarter. 11
Governance Reserves (12) Does your charity hold reserves? Yes 80% No 20% (13) If charities answered yes to question (12) we asked, how much of your reserves have you used during Base: All the Individual months of Respondents September, (n October = 301) and November 2017? Maintained level of reserve 6 Used 2+ Used 16-20% Used 11-1 Used 6-10% 6% 10% A third (3) of those holding reserves have reportedly used reserves over the previous quarter. Used less than 1 Trustee confidence (14) Some charities may face exceptional challenges and may have to contemplate closure, we asked how likely is it that your charity will face closure in the following 12 months? Base: All individual respondents (n = 339) 10 Very likely 9 8 7 6 5 10% 4 3 1 16% 2 1 Not at all likely 2 of charities don t feel confident that they can continue to deliver services in the current environment. 4 12
Investing in development (15) We asked how confident are your Trustees to take opportunities for development, outside of your current business plan which carry a financial risk? Base: All individual respondents (n = 340) 10 Fully confident 9 8 7 1 9% Only of small charity Trustees report to be fully confident to take up opportunities for development. 6 5 4 3 2 1 1 10% 1 1 1 Not at all confident 1 Emerging Trends Cyber Security (16) We asked how confident do you currently feel in the security of your charity s IT? 35 30 3 29% 3 25 20 15 10 5 0 Very confident Confident Neither confident nor concerned Slightly concerned Very concerned 13
(17) We asked in the months of September, October, November 2017, has your charity suffered a computer breach, unlawful access or data loss? (18) We asked does your charity currently include IT security and data protection on its organisational risk register? 98% 6 28% 9% 0 20 40 60 80 100 Yes No Don t know 0 20 40 60 80 100 Yes No Don t know (19) We asked in the months of September, October, November 2017, has your charity carried out any cyber security or information security awareness raising activities for staff or volunteers? (20) We asked do you have plans in place to improve the security of your charity s IT? 50 49% 40 4 20% 78% 30 20 10 9% 0 20 40 60 80 100 Yes No Don t know 0 Yes No Don t know 14
Brexit Temperature Check (21) On the day after the Brexit result, how positive/negative did you feel? 10 Fully confident 9 8 7 6% 39% of small charity leaders stated they were not at all confident about the future on the day after the Brexit result. 6 5 17% 4 3 2 9% 1 1 Not at all confident 39% (22) How positive/negative do you feel now about the decision to Brexit? 10 Fully confident 9 8 7 6 6% In the 18 months since, the proportion of those who continued to be not at all confident fell to 29%. 5 1 4 6% 3 1 2 119% 1 Not at all confident 29% (23) Do you feel the government has provided opportunities for small charities and community groups to represent the views and issues of your beneficiaries to provide input into the Brexit debate? 98% 0 20 40 60 80 100 No Yes 15
Methodology The FSI Small Charity Index is a quarterly State of the Small Charity Sector Report. The Small Charity Index reports across four key areas: Income Generation, Service Delivery, Workforce and Governance. The aims of the Small Charity Index are to assess the challenges facing small and local charities and community groups across the UK, identify trends as they emerge and provide a benchmark against which policymakers can make decisions to support the sustainability of the sector. The data gathering and analysis of trends is carried out by the FSI through its membership of over 5,500 distinct small charities and community groups. The FSI is able to capture large amounts of qualitative and quantitative data through surveys and consultations, in addition to face-to-face consultations with over 2,200 small charities and community groups per annum through its training and advice programmes. The Small Charity Index is compiled using the above analysis together with the biennial Skills Survey and current research projects undertaken by the FSI. With additional reference to relevant research published by other infrastructure membership bodies such as Charities Aid Foundation (CAF), NCVO, Localgiving, Lloyds Bank Foundation and Small Charities Coalition. Examination of other data sources additionally informs the analysis behind the Small Charity Index. Members of the FSI have an annual turnover of under 1.5 million, and respondents from this quarter s Small Charity Index show 5 have an annual turnover under 150,000, 20% between 150,001 and 250,000, 18% between 250,001 and 500,000 and 1 between 500,001 and 1.5 million. Data for the current period was collected between 4 December 2017-11 January 2018, and refers to the period 1 September to 30 November 2017. Comparisons are made with the same questions recorded each quarter since June 2013, giving a total of 54 months of comparative data. 16
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