Social Enterprise - The FSI

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In the months of September, October and November 2017 only 1% of respondents reported to suffer a computer breach, unlaw
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Taking the Pulse of the Small Charity Sector

September to November 2017 18th Edition

Background of Respondents Geographical spread East 5% London

27%

Midlands(E&W) 8%

Scotland

North(NE & Y&H) 13% North West 11% Scotland 4% South East

16%

South West

14%

Wales 2%

North ( Inc. NE & Y&H)

0

5

10

15

20

25

30

North West

Midlands Wales

East (Inc. East Midlands & East) London South East

20 15 10 5 0

Religion 1%

Animals 1%

Homelessness 2%

Sport 3%

Environment 3%

Disability

Arts & Culture 5%

16%

Health

12%

16%

Community

Regional 15%

Local 50%

Education

National 19%

Children & Young People

Where services are delivered International 16%

Cause type

19%

21%

South West

Regional Data Summary

Results from September to November 2017

National Data Summary: September to November 2017

Contents



Foreword

1

Income Generation

2

Service Delivery

3

Workforce

4

Governance

4

Actions

5

Emerging Trends: Cyber Security

6

Brexit Temperature Check

6

Quick Analysis

7

Methodology 16

Pauline Broomhead Olivia Lam

Foreword Pauline Broomhead, Chief Executive, FSI There is little doubt that the increased demand for services has put a strain on small charities, especially those delivering social care outcomes but more generally all local charities providing local support. The pressure on small charities and community groups is compounded by the tough financial climate. The consequences of these two factors coming together create an unstable financial environment in which to operate. In order to solve the most urgent challenge, demand for services, leaders and trustees of small charities and community groups have the added pressure, outside of delivering services, of creating time and allocating resources to focus on their most important challenge: ensuring greater financial stability for the future. The challenge for government and infrastructure organisations therefore is how to support more small charities and community groups to be stronger, more resilient and resourceful, at the same time as they continue to report workload as their most urgent test. There are initiatives out there and at the FSI we truly believe that it is important for all small charities to take a good look at the opportunities they have in income generation. A “mixed income economy” is something we have championed since our inception in 2007 and we still believe that all small charity leaders should look closely at how they can raise the funds to make them sustainable. This doesn’t happen overnight but you can work towards a solid mix of income in a planned and measured way. You will read in this report how income from voluntary and statutory sources are declining or flatlining but these are not the only two sources of income to some, not all, small charities. We urge small charities to look at how they enterprise their mission. Now, more than ever, small charity and community group leaders need to be entrepreneurial, as we have said many times through the Small Charity Index, the charity world is and has changed and become increasingly more complicated. Those leading small charities know that funding cuts will continue, that there is a rising demand for all sizes of charities to demonstrate clearly their impact and social return on investment, that there are new forms of competition from the for-profit sector, and in the press there are serious questions about the effectiveness of how charities operate. All of these challenges are opportunities for social entrepreneurs, which is what small charity and community group leaders are to search out more innovative solutions that lead to sustainable improvements, to experiment with a market-based approach to funding social issues by exploring commercial methods of generating income. Each small charity and community group leader will have to think about what is right for them, but exploring if you are able to maximise income from your current services by finding new and “able to pay” markets or maximising current assets both physical and/or intellectual through a new venture is crucial. In this quarter’s report, yet again Earned Income shows the biggest increase in income but still, only a very small number of small charities and local community groups are exploring this type of income generation. I urge small charity and community group leaders to explore earned income as an opportunity to build sustainability into the financial resources of their not-for-profits.

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Index Results: September, October, November 2017 Detailed Analysis Income Generation Voluntary income Many small charities and community groups rely heavily on voluntary income as their primary source of financial support to deliver services. The generosity of people in the UK is consistent and reliable, however, across the UK the level of voluntary income donated to charities through a variety of sources remains static with £9.7 billion donated in 2016 – on a par with 20151. Between September and November 2017, voluntary income remained static for nearly half of small charities and community groups (48%) (Figure 1). Only 13% reported increases above 10% and one in five charities (21%) experienced a decrease in the same period. With only a total growth of 2% since June 2013, this suggests that voluntary income does not sufficiently offset other funding shortfalls. A regional perspective The Midlands and North West have seen a 2% increase in voluntary income this quarter, while Scotland experienced a decrease of 3% and East and South West experienced a 2% decrease.

Statutory income Local authorities commissioning services are under pressure to achieve savings which often means commissioning larger charities or, more often, large for-profit companies to deliver contracts. Small charities need local authorities to ensure that commissioning processes are proportionate to the size of the contract, thereby creating a more favourable environment in which small charities are able to bid for local contracts. Despite process and engagement barriers, between September and November 2017, statutory income levels remain unchanged for the majority of small charities (85%) (Figure 2). Only 5% reported an increase, a drop from 11% in the last quarter, while 10% reported a decrease in statutory income over the same period. Small charities and community groups report an 11% drop in statutory income overall since June 2013. A regional perspective This quarter, the East and North West regions experienced the greatest decreases in statutory income, of 3% and 2% respectively.

Earned income Faced with these financial challenges, small charities and community groups are attempting to diversify income streams to overcome the challenge. A growing number of small charities and community groups are exploring diverse funding models, such as mission-based enterprises. The number of smaller charities looking to this source of income is as yet small, however, with the highest growth rate across all three income streams (voluntary, statutory and earned), earned income could be the small charity sector’s most important type of sustainable funding. 1 Charities Aid Foundation (2017) CAF UK Giving 2017: An overview of charitable giving in the UK [https://www.cafonline.org/docs/de-

fault-source/about-us-publications/caf-uk-giving-web.pdf ]

2

Between September and November 2017, nearly a fifth (19%) of small charities and community groups reported an increase in earned income (Figure 3). Overall, the Small Charity Index has reported a total increase of 11% in earned income since June 2013. A regional perspective The greatest increases were in the Midlands and South East, which saw a 2% rise in earned income this quarter.

Service Delivery Demand for services The small charity sector is known for being made up of locally-led organisations that are deeply rooted within their neighbourhoods. Indeed, more than half of the respondents (53%) to the Small Charity Index would describe their services as being delivered within their local community. Yet alongside this, small charities and community groups face increasing pressure to fill the gap in service provision, most acutely as a result of central and local government funding reductions, introduction of the welfare reforms and lower incomes of households. This has resulted in nearly two thirds (63%) of respondents reporting an increase in demand for their services between September and November 2017 (Figure 4). In the same period, 28% reported increases in demand of more than 10%, while only 5% reported a decrease in demand for support. These results highlight the continuous rise in demand for small and local charities and community groups’ services, with a total increase in demand in services more than double by 123% since June 2013. A regional perspective Small charities and community groups across all regions experienced an increase in demand for services, with the North West reporting the greatest increase of 15%, and the South West reporting a 13% increase.

Confidence in a small charity’s ability to meet the demand for services With the demand for small charities and community groups’ services showing no signs of subsiding, many respondents to the Small Charity Index are nevertheless optimistic of their own organisation’s ability to meet the demand. Three quarters of respondents (75%) stated they feel confident to a lesser or greater degree that they will be able to continue to deliver their services over the next 12 months (Figure 5). A regional perspective The confidence of small charities and community groups working in Wales and the Midlands reported to be the highest at 76% and 74%.

Working in collaboration At a time where small charities and community groups are competing for limited resources and attempting to meet increased demand for their services without additional funding, it would seem crucial that small charities reach out and collaborate with each other to relieve the strain on their limited resources. However, whilst results from the Small Charity Index show that 79% of small charities and community groups report to be working in partnership with other charities (Figure 6), only a fifth (20%) of small charities and community groups are collaborating at a meaningful level, i.e. undertaking more than 30% of activities in 3

collaboration with others (Figure 7). This low level of collaboration needs to increase as when charities with a common aim work together, they are able to learn and share new skills, improve outcomes for their beneficiaries, build resilience and improve their long-term sustainability.

Workforce Staff and volunteer recruitment and retention Results from the Small Charity Index show positive staff and volunteer retention rates in small charities. Staff numbers have remained relatively stable, with 68% of small charities and community groups reporting no change in numbers, while 21% have indicated an increase (Figure 8). Many small charities and community groups are volunteer- led, with volunteers often working directly with service users. Over a third of respondents (36%) reported an increase in volunteer numbers between September and November 2017 (Figure 9). The Small Charity Index has seen a steady rise in volunteer numbers, with a total increase of 37% since June 2013. A regional perspective This quarter, London, Scotland and the South East saw the largest increase in volunteer numbers, by 3%.

Challenges Many leaders of small charities and community groups face a capacity crunch as they attempt to tackle the pressure of meeting a rising demand for their services with static income levels. With the need to address dayto-day operation matters, the top challenge facing respondents remains to be workload (29%) (Figure 10). The second most selected challenge is funding (23%), followed by demand for services (17%).

Staff motivation Working under such pressures might suggest diminished staff well-being, however, morale remains high amongst the workforce, with small charities and community groups optimistic in their ability meet the challenges. More than three quarters (78%) of respondents report staff motivation as good to excellent between September and November 2017 (Figure 11).

Governance The stark reality is that as a trustee the buck stops with you and your fellow trustees. As the FSI has highlighted many times, the role of the trustee is changing and many trustees are questioning whether the pressures have become too burdensome. To support our members, the FSI have produced a series of six short videos which we hope will be used by trustees to support them in their governance role2.

Reserves The majority of respondents to the Small Charity Index (80%) report to hold reserves (Figure 12), however more than a third (35%) of those holding reserves report to have used reserve funds to compensate for income shortfalls over the quarter (Figure 13). The remaining 20% of small charities and community groups find themselves in a risky situation operating without reserves, raising concerns about their financial viability. 2 View these at: http://www.thefsi.org/services/essential-trustee-series/

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Trustee confidence Respondents to the Small Charity Index were asked to determine how likely it would be that their charity would face closure in the following 12 months, 42% reported that it is not at all likely (Figure 14). Yet during a time when communities are increasingly relying on charities for support, on a scale of 1 to 10, with 10 being very likely, 24% selected between 5 and 10.

Investing in development Combining all the above factors, it is not unpredictable then that only 2% of small charity and community group trustees report to be fully confident to take up opportunities for development, outside of their current business plan, that carry a financial risk (Figure 15).

Potential actions arising from this quarter’s Small Charity Index 1. Small charities and community group leaders need to take stock and consider what a ‘mixed income economy’ would look like for their not-for-profit. The Small Charity Index clearly shows that the fastest growing area of income generation is earned. By this the FSI means: enterprising your mission and whilst this won’t be the answer for all small charities and community groups this type of opportunity should be explored along with voluntary and statutory sources. 2. The most important challenge facing small charities and community groups is meeting the demand for their services. a) Results show a continuous rise in demand for small charities and community groups’ services, with a total increase in demand in services of a significant 123% since June 2013. At this time small charity and community group leaders must think carefully about the well-being of their staff and ensure that they are coping with the pressures of increased service delivery, especially when workload has risen to the single most important challenge small charity and community group leaders face. b) Now is also the time for all small charities and community groups to look at collaborating as extensively as possible to relieve the strain on limited resources. At a time where small charities and community groups are competing for limited resources and attempting to meet increased demand for their services without additional funding, it would seem crucial that small charities reach out and collaborate with each other to relieve the strain. Results show that only 20% of small charities and community groups are collaborating at a meaningful level. More needs to be done as through collaboration we will learn and share new skills, potentially improve outcomes and build resilience and sustainability in our not-for-profits.

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Emerging Trends Cyber Security The volume of digital communications has exploded in recent years, and has been accompanied by a huge rise in public awareness of the importance of staying protected online. In partnership with the National Cyber Security Centre, we would like to understand what small charities are doing to keep themselves safe online.

Results Small charities and community groups are split in their confidence in respect of the security of their organisation’s IT, with 32% reporting to be confident and 33% reporting to be slightly concerned, while only 4% report to be fully confident in their IT security (Figure 16). In the months of September, October and November 2017 only 1% of respondents reported to suffer a computer breach, unlawful access or data loss (Figure 17). The majority of small charities and community groups (63%) state they currently include IT security and data protection in their charity’s risk register (Figure 18). Nevertheless, only 20% have carried out any cyber security or information security awareness raising activities for staff or volunteers over the same period (Figure 19). The risk of experiencing a security breach is reflected in the 42% of small charities and community groups who have plans to improve the security of their organisation’s IT (Figure 20).

Brexit Temperature Check Through the quarterly Small Charity Index, we are keeping a general overview of how small charities and community groups are feeling about and dealing with the post-Brexit vote. More than a third of small charities and community groups (39%) stated they were not at all confident about the future on the day after the Brexit vote, and only 3% stated they were fully confident (Figure 21). Over the 18 months since, the proportion of those who continued to be not at all confident fell to 29% (Figure 22). Those who were fully confident remains low, at 2%, which leaves 69% of small charities and community groups uncertain about the future. When asked whether they felt the government has provided opportunities for small charities and community groups to represent the views and issues of their beneficiaries to provide input into the Brexit debate, 98% responded negatively (Figure 23). Respondents were asked if they had any suggestions on what the government could do to provide such opportunities, the majority suggested having a platform made available to create an open dialogue to debate, discuss and feedback on the issues. “National, well publicised drive for groups to comment and feedback, possibly online, possibly through a third party. With a grant available to charities who could support this process.” “Government should enable facilitation and consultation of charity focus groups so charities are able to discuss concerns etc.” “We need to either have a summit about the issues affecting charities or, if not possible, a survey that would help to identify the key concerns.” Respondents also highlighted the importance of engaging with grassroots level groups and having transparent, comprehensive information available, which could be achieved via umbrella groups or infrastructure 6

2016 d, ”

organisations: “More consultation opportunities on a local or regional level would have been beneficial. Whenever consultation is done it’s always in London and often for small charities this is cost prohibitive to access.” “Issue detailed breakdown of what Brexit means for different sectors of the economy, and how it will affect people, and ask for comments and suggestions.” “By being more open and transparent about long term plans, suppliers and partners will have a more realistic information base on which to make judgements and so reduce risk.”

Quick Analysis Income Generation

(1) We asked “in the three months September, October and November 2017 has your statutory income increased, decreased or remained unchanged?” Base: All individual respondents (n = 347)

2% 2%

85%

0%

3%

85% of small charities reported their statutory income levels remained unchanged.

2% 2%

1% 2%

1% 1%

(2) We asked “in the three months September, October and November 2017 has your voluntary income increased, decreased or remained unchanged?” Base: All individual respondents (n = 347) 2%

4%

4%

4%

48%

5%

4%

21% of small charities experienced a decrease in voluntary income this quarter.

5%

5% 5% 13%

7

(3) We asked “in the three months September, October and November 2017 has your earned income increased, decreased or remained unchanged?” Base: All individual respondents (n = 347) 21% + Decrease 16-21% Decrease

1%

2%

19% of small charities experienced an increase in earned income this quarter.

1%

73%

2%

11-15% Decrease

1% 2%

0-5% Decrease Unchanged 0-5% Increase

3% 3%

6-10% Decrease

6-10% Increase 11-15% Increase

2%

16-21% Increase

10%

21% + Increase

Service Delivery Demand for services (4) We asked “in the three months September, October and November 2017 has your charity seen the demand for services increase, decrease or remain unchanged?” Base: All individual respondents (n = 347) 0%

21% + Decrease

1%

16-21% Decrease

0%

11-15% Decrease

1%

6-10% Decrease

3%

0-5% Decrease

32%

Unchanged

16%

0-5% Increase

19%

6-10% Increase

11%

11-15% Increase

12%

16-21% Increase

5%

21% + Increase

0

8

5

10

15

20

25

30

35

63% of small charities reported an increase in demand for services this quarter.

(2) We asked “taking everything into Confidence in a small charity’s ability to meet the demand for services

account, how confident do you feel about your charity’s ability to deliver (5) We asked “taking everything into account, how confident do you feel about your charity’s ability to its planned level of services over deliver its planned level of services the over the next 12 months?” next 12 months?” Base: All individual respondents (n = 340) Base: All individual respondets (n = 301) 10 Fully confident

9%

16%

9

22%

8 19%

7

9%

6 14%

5 4 3

75% of respondents reported they are confident to a lesser or greater degree that they will be able to continue to deliver their services over the coming 12 months.

2% 6%

2

1%

1 Not at all confident

2%

Working in collaboration (6) “does your charity work in partnership with other charities?” (3)We Weasked asked “does your charity work in Base: All individual respondents (n = 347)

partnership with other charities?”

(4) We asked the charities that answered YES, “what percentage of your services during the three months September, October and November (7) We asked the charities that answered yes, “what percentage of your services during the three months 2016 were delivered in partnership?”

Yes 79%

No 21%

September, October and November 2017 were delivered in partnership?” Base: All individual respondents (n = 301)

Only 20% of small charities are collaborating at a meaningful level i.e. undertaking more than 30% of activities in collaboration with others.

40%

20% 15%

15% 4%

0 -10%

11- 20%

21- 30%

31- 40%

5%

41- 50%

50+%

9

Workforce Staff and volunteer recruitment and retention (8) We asked “in the three months September, October and November 2017 have your paid staff numbers risen, fallen or remained unchanged?” Base: All individual respondents (n = 347)

68% of small charities report their staff numbers remain unchanged over the current quarter.

2% 3%

21% + Decrease

1%

16-21% Decrease

1%

11-15% Decrease

4%

6-10% Decrease

68%

0-5% Decrease

9%

Unchanged

5%

0-5% Increase

1%

6-10% Increase 11-15% Increase

3%

16-21% Increase

3% 0

10

20

30

40

50

60

70

80

21% + Increase

(9) We asked “in the three months September, October and November 2017 have your volunteer numbers risen, fallen or remained unchanged?” Base: All individual respondents (n = 347) 0%

Over a third of small charities (36%) reported an increase in volunteers this quarter.

2% 1% 2%

21% + Decrease 16-21% Decrease 11-15% Decrease 6-10% Decrease

5%

0-5% Decrease

54%

Unchanged

16%

0-5% Increase

7%

6-10% Increase

5%

11-15% Increase

6%

16-21% Increase

2% 0

10

10

20

30

40

50

60

21% + Increase

Challenges (10) We asked “in the three months September, October and November 2017, which of these issues has presented the greatest, second greatest and third greatest challenge?” Base: All individual respondents (n = 347)

23%

29%

0

Investment

11%

11%

Retention

7%

6%

9% 3%

2%

Training

3%

4%

3%

2% Workload

6%

7%

10

5

12%

10%

10% 11%

15

15%

14%

14%

15%

17%

20

18%

25

9%

30

29%

Workload continues to be the most pressing concern to small charity leaders this quarter, selected as the greatest challenge by 29% of respondents.

Cashflow

Demand

Funding

Motivation

Recruitment

Staff motivation (11) We asked on a scale of 1 to 10 “how would you rate the current motivation/morale of your staff?” Base: All individual respondents (n = 337)

0% 0%

6%

13% 6% 18%

5%

10 Excellent

9

8

7

6

5

4

3

2

78% of respondents reported staff motivation as good to excellent over the current quarter. 1 Very Poor

10 Excellent

9

8

14%

7

6

5

4

3

2

1 Very Poor

10%

27%

11

Governance Reserves (12) Does your charity hold reserves? Base: All individual respondents (n = 347)

£

£

(2) If charities answered YES to question (1) we asked, “how much of your reserves have you used Yes 80% No 20% during the months of September, October and November 2016?” (13) If charities answered yes to question (12) we asked, “how much of your reserves have you used during theIndividual months of September,(nOctober Base: All Respondents = 301) and November 2017?” Maintained level of reserve Used 21%+

65%

4% 6%

Used 16-20% Used 11-15%

A third (35%) of those holding reserves have reportedly used reserves over the previous quarter. 3%

10%

Used 6-10%

12%

Used less than 5%

Trustee confidence (14) Some charities may face exceptional challenges and may have to contemplate closure, we asked “how likely is it that your charity will face closure in the following 12 months?” Base: All individual respondents (n = 339)

10 Very likely 9 8

2% 2%

7 6

3% 10% 5%

3 2

13% 16%

1 Not at all likely 12

24% of charities don’t feel confident that they can continue to deliver services in the current environment.

4%

5 4

2%

42%

Investing in development (4) We asked “How confident are your Trustees to take opportunities for development, outside of

(15) Wecurrent asked “how confident yourcarry Trustees to take opportunities for development, outside of your your business plan are which a financial current risk?” business plan which carry a financial risk?” Base: All individual respondents (n = 340)

Base: All Individual Respondents (n = 301) 10 Fully confident 9

2%

1%

8 7

9% 11%

6 5

10% 14% 12%

4 3

Only 2% of small charity Trustees report to be fully confident to take up opportunities for development.

15%

2

12%

1 Not at all confident

14%

Emerging Trends Cyber Security (16) We asked “how confident do you currently feel in the security of your charity’s IT?” Base: All individual respondents (n = 347) 35

33%

32% 29%

30 25 20 15 10 5 0

4% 2% Very Confident Neither Slightly Very confident confident concerned concerned nor concerned

13

(17) We asked “in the months of September, October, November 2017, has your charity suffered a computer breach, unlawful access or data loss?”

(18) We asked “does your charity currently include IT security and data protection on its organisational risk register?”

Base: All individual respondents (n = 347)

Base: All individual respondents (n = 347)

98%

0

20

40 Yes

63%

60 No

80

100

0

Don’t know

20

40 Yes

(19) We asked “in the months of September, October, November 2017, has your charity carried out any cyber security or information security awareness raising activities for staff or volunteers?”

28%

60 No

80

(20) We asked “do you have plans in place to improve the security of your charity’s IT?” Base: All individual respondents (n = 347)

49%

50 42% 40 30 78% 20

9%

10

0

20

40 Yes

14

60 No

80 Don’t know

100

100

Don’t know

Base: All individual respondents (n = 347)

20%

9%

0

Yes

No

Don’t know

Brexit Temperature Check (21) On the day after the Brexit result, how positive/negative did you feel? 10 Fully confident 9

3%

4%

8

2%

39% of small charity leaders stated they were not at all confident about the future on the day after the Brexit result.

6%

7 6

4%

5

17%

4

4%

3

11% 9%

2

1 Not at all confident

39%

(22) How positive/negative do you feel now about the decision to Brexit? Base: All individual respondents (n = 347) 10 Fully confident 9

2%

2%

8

3% 4%

7 6

In the 18 months since, the proportion of those who continued to be not at all confident fell to 29%.

6%

5

15%

4

6%

3

14% 119%

2

1 Not at all confident

29%

(23) Do you feel the government has provided opportunities for small charities and community groups to represent the views and issues of your beneficiaries to provide input into the Brexit debate? Base: All individual respondents (n = 347)

98%

0

20

40 No

60 Yes

80

100

15

Methodology The FSI Small Charity Index is a quarterly ‘State of the Small Charity Sector’ Report. The Small Charity Index reports across four key areas: Income Generation, Service Delivery, Workforce and Governance. The aims of the Small Charity Index are to assess the challenges facing small and local charities and community groups across the UK, identify trends as they emerge and provide a benchmark against which policymakers can make decisions to support the sustainability of the sector. The data gathering and analysis of trends is carried out by the FSI through its membership of over 5,500 distinct small charities and community groups. The FSI is able to capture large amounts of qualitative and quantitative data through surveys and consultations, in addition to face-to-face consultations with over 2,200 small charities and community groups per annum through its training and advice programmes. The Small Charity Index is compiled using the above analysis together with the biennial Skills Survey and current research projects undertaken by the FSI. With additional reference to relevant research published by other infrastructure membership bodies such as Charities Aid Foundation (CAF), NCVO, Localgiving, Lloyds Bank Foundation and Small Charities Coalition. Examination of other data sources additionally informs the analysis behind the Small Charity Index. Members of the FSI have an annual turnover of under £1.5 million, and respondents from this quarter’s Small Charity Index show 51% have an annual turnover under £150,000, 20% between £150,001 and £250,000, 18% between £250,001 and £500,000 and 11% between £500,001 and £1.5 million. Data for the current period was collected between 4 December 2017 - 11 January 2018, and refers to the period 1 September to 30 November 2017. Comparisons are made with the same questions recorded each quarter since June 2013, giving a total of 54 months of comparative data.

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