Martin Gill: Scots charities should consider merging to save money

THE recession has resulted in dramatic changes to many well-known businesses in Scotland with the acquisition of HBOS by LloydsTSB being, perhaps, the best known. Recessions cause businesses to look at their activities and those of their rivals and see whether they would be more viable if one business was to merge or acquire another.

Many charities may now find themselves in exactly this situation, where there is no alternative but to either merge or acquire another similar charity. In the charity sector, for instance, Age Concern and Help the Aged became Age UK.

The most successful mergers and acquisitions occur where there is a strong overlap in services being provided by two organisations and where uniting would produce cost savings. Some of the larger charities have begun looking at ways to deliver services by forming consortia which can unite to reduce costs.

Our latest survey showed 41 per cent of charities needed to make cost savings; 28 per cent were drawing on reserves; and 71 per cent anticipated a fall in at least one main source of income over the next year. The time is right to consider merging to reduce costs.

With 53 per cent of Scotland's 23,265 charities operating within the social care and development sector alone, there must be some room for collaboration and co-operation to improve the financial situation of some of these organisations.

Given that 83 per cent of all Scottish charities have an income of less than 100,000 yet only 6 per cent of total income, there may be a need for many to increase in size to produce a more cost-efficient means of delivering their services. There are economies of scale in larger organisations which result in improved profitability and increased funds to deliver services.

Charities should always be examining the best operational methods, the most efficient costs, but with the optimum service delivery. Too often it is only when financial difficulties arise that most organisations consider such an examination of their operations. All charities now need to consider all options.

• Martin Gill is charities partner with accountants PKF