It's day two of Small Charities Week and so it is 'Big Advice Day'! Alison from Community Southwark’s Development Team has analysed Lifeline to bring you useful advice based on the lessons we learnt from this crisis.
The recent demise of ‘Lifeline’ highlights again that, when it comes to a charity’s survival, size is irrelevant.
The main reason for Lifeline’s closure appears to have been its heavy reliance on public sector contracts, with only a small amount of grant income and no other income. According to press reports, the charity had undercut other bidders to buy contracts which could not be delivered for the price. In addition, it had vastly insufficient reserves in relation to its spending, and top-heavy staffing costs.
With an annual turnover of £60m, Lifeline was a large charity. But its downfall has lessons for small charities too.
First, the performance of providers such as Lifeline has increased local authorities’ awareness that focusing on ‘value for money’ does not guarantee high quality services to beneficiaries. This could be an opportunity for smaller voluntary sector organisations, probably through collaborative arrangements, to approach councils with a new offer. Whilst their costs may be higher than those of their larger counterparts, small organisations know their communities well and can often provide added value through work which is high quality and preventative. Smaller charities have an vital role to play in calling for reform to the commissioning environment to make it fairer and more accessible to them - for example through increased grant funding, funding of core costs and adoption of longer length contracts.This in turn would increase their security and capacity to deliver services.
In its recent VCS Strategy, ‘Common Purpose, Common Cause’ Southwark commissioners and grant funders committed to working closely with providers and stakeholders to design appropriate systems to meet local need. In response, Community Southwark has been co-ordinating input from local organisations to establish a common outcomes framework for commissioning and grants. Securing the role of smaller organisations in service delivery has emerged as a key issue: the next stage will be to develop the detail of the new framework and how smaller organisations can be key part of it (to get involved in this process, contact Steve@communitysouthwark.org).
Second, Lifeline made the fatal mistake of relying too heavily on one source of income – in this case, public sector contracts. With severe cuts to public sector funding and intense competition for grants, it’s essential for charities no matter their size to start thinking about other options for bringing in money, and to have clarity about when different income streams begin and end.
Third, all charities, regardless of size, need to have sufficient reserves in relation to their activities and understand the difference between risks that should and should not be managed by them. The Charity Commission’s guidance on reserves doesn’t stipulate a required level, but requires trustees to "regularly monitor and review the effectiveness of the policy in the light of the changing funding and financial climate and other risks”. A well run charity does not need to build up large reserves: Instead, it needs to manage its strategic risk well (see our fact sheet ‘How to develop a reserves policy’).
All charities need a business plan (it can be a simple document) that identifies opportunities and risk, and fully costs its services, with a 3 - 5 year cash flow projection showing how these costs will be met. This should include a strong set of financial controls which will clarify who does what when and how, ensuring transparency and efficiency.
To survive, all charities must build on their strengths, understand their weaknesses and develop a plan for the future (sustainability). Community Southwark can help you by working with you on your business plan and finance strategy. We also have a range of free resources and (mostly free) training to help you future-proof your organisation.
Get in touch with us for support
For even more useful advice, contact us on: firstname.lastname@example.org. We can talk through things on the phone or arrange a free appointment for you to come in and see us.
Join the Small Charities Week Twitter campaign, use the hashtag #ILoveSmallCharities and do tweet us @cosouthwark.
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