Financial impact of covid-19 on charities

Voluntary sector organisations are on the frontline of supporting vulnerable people and will experience a variety of impacts related to the crisis. Some are seeing huge increases in demand for services, with 43% of charities predicting an increase in demand for their services, according to a recent survey. Our latest information suggests that charities will lose out on around £4bn worth of income over the next three months.

Household names such as Cancer Research UK and Macmillan Cancer Support anticipate losing over £200m between them. Others such as Scouts and Mind expect to lose millions over the next few months and are severely concerned about their continued ability to exist in anything resembling their current form.

Charities are losing out on income because of the cancellation of fundraising events, a loss of trading income, and lower investment income.

Fundraising

Nearly every area of fundraising has been impacted, with many charities already experiencing major losses in cash donations. This directly affects and interrupts cash flow and the ability for charities to deliver their existing services. In the short term, the cancellation of fundraising events and community activity have left a big gap in charity finances. The vast income that has been lost already, and which will be lost, will not be recovered. As well as cash donations, fundraising activity that brings in regular and ongoing support is being severely impacted. With the cancellation of much of this activity, charities will have fewer regular supporters this year, costing them millions of pounds of income as well as severely disrupting the fundraising environment with many fundraising agencies and partners not able to stay afloat.

Contractual Income

Many voluntary sector organisations deliver public sector contracts. In the case of contracts using payment-by-results, an inability to deliver against contracted outcomes has the potential to have disastrous results for the sustainability of these organisations. Often payment-by-results contracts require a great deal of investment up front, with costs recovered over time. Charities experiencing cash flow issues will simply be unable to cover these costs. There are also concerns that it may be harder for organisations who deliver public sector contracts to recover costs that aren’t direct staff costs, much of which is often recovered towards the end of the contractual period. Charities do not have the reserves for this to be sustainable.

Wider economic impacts

Voluntary sector investment portfolios have already been impacted by the fall in the stock market. This includes charitable foundations, which will have smaller funding pots available to charities in the medium term. A survey of charities undertaken has found that 44% of charities are already experiencing issues with cashflow, with a further 46% expecting to experience this in the near future. Almost half (45%) are unable to cover their payroll, and a third unable to pay their bills, rent, and mortgage. Furthermore, about one quarter (24%) of charities don’t hold any reserves. All organisations, including large household name charities, have expressed concern about how their reserves are being depleted rapidly.