Charities may need to look at how they operate to cope with the cost-of-living crisis - Lianne Lodge

We are all aware of the cost-of-living crisis and how that is affecting us as individuals, but it also has implications for the vital charities within our communities.

Charities continue to do amazing work, despite tighter budgets, as they balance providing staff with sufficient wages to cover ever-increasing living costs, whilst still having money to keep their own lights on. Additional support for the sector would be welcomed and the Fundraising Regulator has begun a two-year review of its Code of Practice to identify and implement improvements.

In the meantime, charities may need to consider how to diversify and stabilise their income streams. There are a number of ways charities can maximise the funding available to them, whilst continuing to provide the crucial support they offer, including:

Review Restricted Funds

Lianne Lodge is Partner and Head of Charities, Gillespie Macandrew

If the charity has funds in accounts that are restricted or designated for a particular purpose, they should consider whether these can be freed up. Is the project ongoing or has it been completed or put on hold indefinitely? If it is a ‘designated’ fund, the board may be able to free up the assets themselves, while a ‘restricted’ fund may need permission from the funders. If that isn’t possible, an application to the Office of the Scottish Charity Regulator (OSCR) would be required. OSCR regularly deals with such applications and is mainly supportive, as funds would be freed up for public benefit.

Small Grant-Giving Charities

Many small grant-giving charities were set up by generous individuals during their lifetime or in their Will. Traditionally, these charities would look at income to facilitate the grants. However, I would encourage a review of constitution to ascertain whether it is possible to draw down on the capital reserve or look to spend down the charity assets entirely by giving significant grants therefore, ultimately winding up the charity (with the consent of OSCR). There are significant funds in the charity sector which may be better used on the frontline to provide support to those in need.

Trading

Charities may consider entering commercial agreements to generate funds to support their purposes, for example opening a café, selling items, or providing services. While this can be an excellent fundraising endeavour, care should be taken to ensure that it is done in the most tax-efficient way possible, that any additional risk is managed and that any trading subsidiary is set up to support the charity, not vice-versa. Where charities already have a trading subsidiary, it is imperative charities ensure they are ring fencing and safeguarding their own assets, not risking their security against its success.

Reserves

Charity reserves provide a vital safeguard to effectively hold a rainy-day fund allowing for an orderly winding up of a charity if required. Charity Trustees tend to be, by nature, cautious people, which in many cases is to be encouraged. That said, Charity Trustees may want to look at reserves to ascertain whether there is any cream that can be taken from the top. This is something that should be done carefully and with advice. However, if reserves are significant and for a rainy day, the board may benefit from looking at the sky to see whether clouds are forming and prepare that umbrella.

Changing operations

The board may identify a particular need or new opportunity to provide an extended offering and/or apply to different funding sources. This may present an opportunity, but it is imperative that organisations check their constitution (not strategy, vision or mission statements) to ensure a new project falls in line with the stated charitable purposes contained in it. If not, the charity would be required to apply to OSCR for consent to update the charitable purposes before undertaking any work in the area.

I am fortunate to see first-hand the huge difference our incredibly active charities and third sector makes to peoples’ lives across the country, and it is critical that we preserve and enhance their service provision at this time of economic uncertainty. I encourage any charities considering changing the way they are funded, or the support they provide, to seek professional advice to ensure that they are complying with their constitution and the Trustees’ charitable duties, while making the most of any funding opportunities.

Lianne Lodge is Partner and Head of Charities, Gillespie Macandrew