The firm’s funding and functionality report into finance trends in the sector found that over half of the respondents (60%) viewed the competition for funding as a significant challenge for the sector; followed by a quarter stating that the stricter application of criteria when applying for funds as a key barrier.

This is compounded by a third of respondents (32%) witnessing further falls in central government funding falling and 43% reporting a drop in statutory local authority funding.

However RSM found only two thirds (67%) of charities produce monthly financial reports, highlighting that almost a third will be working on historical figures when applying for funding as they only produce financial management reports on an annual (4%) or quarterly (29%) basis. Nearly half of respondents are using reserves to control cashflow.

The survey also shows that two thirds of charities are struggling to recruit staff with the correct skills, which RSM says could indicate cost pressure reducing the ability to compete on salaries. This together with the backdrop of increased competition, funding pressures and external influences, such as auto enrolment, GDPR, and the impact of Brexit, makes a challenging operating environment when resources could be limited. 

For example, 11% of those polled do not offer a pension provision, despite compulsory auto enrolment responsibilities, while 20% are considering a merger or strategic alliance, up from 14% in 2015.

Karen Spears, head of RSM’s restructuring advisory not for profit group, said: ‘Funding for charities will always be a significant challenge due to the uncertainty of levels of donations, fluctuation in investment returns and any changes to statutory funding and policy. Combine this with increased competition for the limited funding available and charities are facing an increasingly challenging period.’

Half of respondents (53%) cite GDPR requirements as a major challenge and a third (34%) expect a negative impact from Brexit.

‘Charities need to be on top of their finances when applying for funding and worryingly a number of charities could be using out of date figures due to dated financial reports, which does not place them in a strong position in this competitive market.

‘In a difficult funding environment, charities need to improve the way financial information is gathered and analysed within an organisation to ensure trustees have the right information to give their charity the edge when competing for funds,’ Spears said.

Funding and functionality: the ongoing challenges of charity finance is here 

Report by Pat Sweet