The Banks Revealed Hardship Too Late; Charities can't afford to do the same

Jake Hayman, CEO, The Social Investment Consultancy

Too many of the financial institutions we relied upon failed to flag up problems early enough – we only found out about them when the burden of their failure suddenly appeared on our shoulders. We can't afford for charities to do the same.

Today, many charities are heading toward financial difficulties that will hit their beneficiaries hardest. Not enough of them are taking steps to face up to or respond to this.

The challenge to generate new funding streams is not insurmountable. They can be more robust and diverse than before can be overcome but only by developing strong strategic plans, engaging donors in problem solving early and investing in their fundraising.

Toward the end of 2008 and intermittently since, charities whose seeming financial stability has disappeared from under them, have started sending out desperate calls for donations. Of course, most charities in this situation never had a robust or diverse fundraising strategy, just a couple of donors who they thought they could rely on who subsequently deserted. Rather than taking any necessary short-term cuts and presenting a coherent plan worthy of funding, they begged in desperation and in doing so lost the confidence and support of their donors.

Over the next 12 months multi-year government contracts that have fuelled many UK charities will not be renewed or will be cut short. Some of them will have a diverse base of supporters that will mean that although this is painful, it is not terminal. Others, however, will have treated themselves like the government agencies that they have worked so closely with (and may have once been a part of) and never looked objectively at building a long-term fundraising strategy.

These charities are running programmes that fill gaps in government services and the better ones are changing lives across the UK every day. We need them.

I have spoken about fundraising strategy with a host of such organizations over the past 12 months. Some have taken a business like approach to tackling future funding gaps early. The dangerous pattern amongst the majority, however, is that they start off excited about getting funds from new sources, find out that this doesn't happen overnight and that it requires investment – either through new staff or consultancy support – and bury their heads in the sand again.

The thought of hiring a new, well-paid staff member or investing in external consultants when you are looking at making cuts to your loyal team is seen as too difficult a decision to make. The repercussions of this short-sightedness will be the organisation's long-term failure. Fundraising is a professional discipline that needs a strategic and professional approach and to be successful it needs to be done from firm ground, rather than in desperation.

No donor – government, trust or foundation or individual - will want to be the one that bails out the organisation that simply ran out of money. They will want to invest in the one that is going to change the world.

For these charities to be successful, they need to do three core things. Firstly, they need to be writing up strategic plans as well as contingency plans because that is what donors will want to fund. Secondly, they need to invest now in diversifying their fundraising based on a robust strategy. Thirdly, they need to be open and honest with donors so that they can seek their help over what will be a long and difficult period, rather than turn to them when the damage is already done.

In a 2010 poll we commissioned at The Social Investment Consultancy, 500 high net worth individuals revealed that they are more likely to make a gift to an organization using the money to fund sustainability over programming. The money is there, you just have to be smart about how to access it.

Jake Hayman is the CEO of the fundraising and strategy consulting firm, The Social Investment Consultancy (www.tsiconsultancy.com), an ACEVO corporate partner.