Charities report: the 2024/25 financial outlook for charities
Following the release of our 2024 Charities Report*, Associate Director Brian Thomson examines the financial outlook for charities in Scotland and explains how Consilium is helping clients tackle a growing list of financial challenges.
Funding pressures and the financial outlook for charities
While almost half of the charities surveyed have a positive outlook for the financial year 2024/25, unsurprisingly 83% face pressure on their income streams.
As national and local government funding is squeezed or reallocated to statutory services, the financial outlook for charities is one of real-term cuts and a greater expectation to deliver more for less. Simultaneously, not-for-profit organisations are seeing discretionary forms of income – grants, sponsorship and donations – tightening.
The challenge for charities is to analyse existing income streams and determine which are at greatest risk. Similarly, charities need a clear understanding of the elements of their service delivery that are now of greatest importance.
We are working with charity and not-for-profit clients to develop strategies to diversify or consolidate their service offerings. In doing so charities can often secure new funding or increase income from services now in the highest demand.
Consilium’s priority is to help clients continue to deliver key services and maintain their social mission. Get in touch to learn how we help charities navigate financial challenges and opportunities.
Increasing costs dominate the financial outlook for charities
The survey highlights that charities are not immune to the ongoing cost pressures inherent in the Scottish and UK economies. Specifically:
- 81% of charities have seen wage costs increase in the past 12 months;
- 76% of charities have experienced energy cost increases; and
- 78% have seen insurance costs rise.
We are working with clients who, for example, have salaries linked to NHS pay scales and therefore have no choice but to increase wages in line. This is often coming without any commensurate increase in funding.
Charities in Scotland without robust financial forecasting in place will struggle to operate within their current service delivery models. Consilium already works with not-for-profit clients to provide up-to-date cashflow calculations, management accounts and forecasting.
Financial analysis like this can offer insights into cost and operational efficiency opportunities. They can also help to ensure charity board members and trustees can monitor the financial outlook for charities and take a proactive approach to dealing with cost pressures.
Robust risk management underpins a positive financial outlook for charities
An overarching theme of the survey is that charities need to understand risk and have robust risk management processes in place. This isn’t to say you need a 40-page risk assessment and risk register that is reported to the Trustees weekly. However, a proportionate examination of risk is fundamental to establishing a sound financial outlook for charities.
At Consilium, we work with our charity clients to ensure they have a suitable review of risks relating to costs, income streams, human resources, legal considerations and operational issues.
For example, does your charity fully understand the terms of your building lease? Is your charity liable for partial or full dilapidation costs? Is there a contingency in your budget to cover such an eventuality?
Assessing the risks facing your charity need not be a daunting prospect. The team at Consilium would be happy to discuss how we can better prepare your not-for-profit organisation for the financial risks ahead.
Expert advice from trusted Charity accountants and advisors
Whilst the future presents challenges for all charities in Scotland, challenges also bring opportunities. Not-for-profit organisations that seek them out may find themselves in a much stronger position in the future. Now is not the time for charities to rely upon a status quo approach and we would encourage all charitable organisations in Scotland to think about how to take some of the steps discussed in this article. If we can assist with any of these please do not hesitate to contact Consilium.
To arrange an informal chat or discuss your charity’s specific needs, contact Brian Thomson.
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*As a member of Kreston Global – an international network of independent accounting firms – Consilium Chartered Accountants contribute to UK-wide research into key topics and issues affecting our business and charity clients. Read the full UK Charities Report 2024.