New mind

We are all feeling the challenge of the financial climate, and charities are not immune. However, opportunity can be found in austerity. It is time for charities to discover how to become less vulnerable to external pressures, more flexible, adaptable and therefore more able to flourish. Like it or not, charities '“ like everyone else '“ must move with the times. The time is right for new ways of thinking about how:

• organisations are structured and managed;
• assets are invested, managed and developed;
• services are delivered;
• innovation is harnessed; and
• funding is accessed in times of scarcity.

There are many ways in which charities can, and need to, change their thinking '“ and their 'doing' '“ to become fitter for the future: what follows is just the start.

Robust financial planning

Routine and robust business planning is a must especially when looking to borrow money. Increasing borrowing power is all about credibility. Charities and their funders need to think about:

• Income generation: what is the right charitable business model and what are the income streams against which the charity might borrow?
• Security: what forms of security can the charity give?
• Collaborative purchasing and borrowing: an asset bank pooling resources could help with funding '“ what is 'mine' should be less important than how assets and funds are most effectively used to further charitable objectives.
• New forms of investment: such as social impact bonds, community share issues and Sharia finance. Real opportunities are developing as investors reconsider their priorities for responsible investment.

Viable organisational structures

Just as better business planning will help charities increase borrowing potential, learning from other business structures (such as those used by social enterprises) will help charities identify what will best enable them to face the future. The community interest company and cooperative and community benefit society structures might all have their part to play. Group structures are likely to be the order of the day.

Proactive asset management

Outgoings on a property portfolio can be disproportionately high. Despite the temptation, charities can't afford to bury their heads in the sand. Proactive asset management is key to future sustainability '“ using present financial circumstances to create a long-term strategy for the future. Reviewing/ restructuring a charity's portfolio is vital to both business planning and risk management whether the charity is landlord, tenant or, perhaps most commonly, both. Organisations need to consider:

• Active portfolio management: do you know what you own and why you own it? Are there properties you don't need or that aren't being used to maximum effect?
• Individual properties: are there innovative ways in which individual properties could be used to reduce overall liabilities such as negotiating 'win-win' arrangements between landlords and tenants (for example, monthly rents can be more affordable than quarterly rents and can have cashflow benefits)?

Trading effectively

Trading can be about much more than charity shops. It usually means developing new income streams either in fulfilment of your charitable purposes or to raise funds to plough back into charitable activities.

Besides a good feasibility study and business plan, any charity going down this route must be clear about what it can undertake itself and what should be directed through a trading subsidiary.

And then there is the question of the right relationship between the two, the charity and its subsidiary, to demonstrate a reasonably 'arm's length' arrangement. What are the right governance links? Is the charity providing finance? Is the trading company using charity staff, premises or equipment? A complex arrangement, but one which pays rewards when it's right.

Working better with others

Often services can be run more effectively when charities work with others. Sharing or co-sourcing equipment, IT, staff, back-office functions or premises are all options for effective joint working. This can both cut costs and improve effectiveness as well as reinforce the achievement of charitable ends when working alongside others with the same or similar objectives. Even if your organisation doesn't want to consider a formal merger, other forms of collaborative and joint working can prove to be in the best interests of the charity's beneficiaries ultimately directing more funds to frontline services.

Often the biggest issue for organisations delivering public services is the need to be part of a consortium to win contracts, or to be satisfied with being part of a 'supply chain'. Charities should be identifying now those organisations they want to work with in the future '“ whether fellow charities, social enterprises, private businesses or public bodies '“ and talking to those organisations about a range of possiblities.

The government has stated that the reforms underpinning the comprehensive spending review represent a significant increase in opportunities and funding available to voluntary and community organisations in the medium/long term. The review is intended to be part of the broader programme of public service reform 'changing the way services are delivered by redistributing power away from central government and enabling sustainable, long-term improvements in services'.

So, how do we harness the expertise and resource that already exist to create viable and successful change for the better? Third-sector organisations can play a core role in remodelling public services. The Office for Civil Society has stated its commitment to seeing a significant proportion of public sector service delivery in the hands of not-for-profit organisations. There are, then, real opportunities but charities will need to think on their feet.

Contributing to wellbeing

The Public Services (Social Enterprise and Social Value) Bill, if passed, could unlock public procurement of services and help government departments and other public bodies achieve a greater degree of well being for people and communities.

The bill provides a statutory framework for supporting social enterprise and enables economic, social and environmental wellbeing to be considered each time a public procurement exercise is undertaken. The bill is a charter for 'can dos' and, if passed, will provide a valuable framework for doing things differently and meaningfully. It will enable the third sector to demonstrate its contribution to wellbeing and provide a much greater opportunity for achieving '“ and recording '“ that contribution when working with public bodies.

Using people effectively

Good governance plays a key role in maximising a charity's potential. It is vital for charities to consider the effectiveness of their boards '“ who is appointed, how boards are organised and structured and how they perform on an ongoing basis. Making best use of staff and volunteers is important in maintaining service standards while also controlling costs, so setting clear overall goals, aligning individuals' targets with those goals and holding people accountable for delivery are key components of ensuring sustainability. Charities need to ensure they have the right people 'on the bus' with the permissions and training they need to do what is required of them.

The pensions niggle

The government has confirmed it will proceed with plans to automatically enrol staff into pension schemes, and, for the first time, require employers to contribute to those schemes. The timing for implementation depends on the number of staff employed but all employers will need to start auto-enrolling some time between October 2012 and September 2016. Contributions will be phased in, starting at one per cent and rising to three per cent within five years. Employees will also be required to contribute.

Anecdotal evidence from charities that have experimented with auto-enrolment suggests that, contrary to expectations, few staff members will opt out. The combination of auto-enrolment and compulsory employer contributions, as well as the associated administration, is likely to mean a significant rise in costs for many charities so you should start planning and budgeting for this now.

Attractive option

There is a pervading fear that 'Big Society' means third-sector organisations are expected to deliver for nothing that which is currently being paid for. But an opportunity is available for the third sector which, because of its passions, its experience and its potential to be more 'fleet of foot', is an attractive option for those who want to achieve real change in a cost-constraint environment.

The challenge for the third sector is to adopt a more robust 'business model' and to energise the localism agenda: to be more businesslike and yet to resist all of the temptations which a purely commercial model can present, to take the good practice which can be learned from the private sector without losing the passion and the energy which are so cherished in the charity world. A culture change is needed if charities and others are to survive the fiscal freeze. Those that want to thrive will need to embrace it.

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