Not-for-profit organisations finding a new balance

The Charity Finance Group has launched the results of its Finance Counts 2016 report. A notable finding is that charities are struggling to generate income from public service agreements and contracts, with many charities making significant losses on contracts.

The survey found that the median surplus (income less total costs) on service agreements or contracts was 0%. For the bottom quartile, the median loss was 16.9%. For the upper quartile, the median surplus was 3.4%. This shows that even those charities able to generate surpluses were not making large gains.  

Such figures should always be seen as an indicator rather than absolutes, given that they are based on a limited sample of organisations. However, they highlight a few interesting issues.

Whilst securing contracts at a loss may be sued as a growth strategy it is not sustainable and the value of those contracts is more likely to go down than up. For local organisations that want to invest in our communities for the long-term, sustainability has to be a core goal.

If VCSE (Voluntary, community and social enterprise) organisations, that will often have lower running costs, can’t generate a surplus out of a contract it is unlikely to be viable for a commercial provider, particularly at an acceptable quality.

It is likely that a significant number of VCSE organisations are subsidising public sector contracts. We know from conversations that some are considering withdrawing from public sector contracts as cuts mean they fund an increasing proportion of contracts that they have little control in shaping.

Norfolk’s VCSE sector invests £384 million a year in Norfolk with £249 million of that coming from non-public sector sources. At a time where we have increasing demand and declining resources it is vitally important that we align that investment across relevant partners to ensure the best possible outcomes for local people and communities

This requires us to find a new balance in the roles of public, VCSE and private sectors in supporting our people and communities. There needs to be more focus on shared and jointly owned undertaking. This is a huge cultural shift for all involved and needs an ‘upstream’ conversation to jointly shaping, and investing in, strategy and policy.

In this dialogue all VCSE organisations will need to strike a balance between the desire to help their target beneficiaries with economic reality and the political awareness not to be taken advantage of.

Read more about the issues and values of the local sector in the Sector Led Plan by clicking here.