HOW CHARITIES AND SOCIAL ENTERPRISES CAN RESPOND TO THE COST-OF-LIVING AND ENERGY CRISIS

The cost-of-living and energy crisis is the latest major headache for charities and social enterprises, with many experts now predicting that the impact could be more severe than the pandemic.

When the outlook is so serious, and you have a million other things to do, it might be tempting to put off thinking strategically about this, and simply hope that the worst projections don't come true. But - I can’t stress this enough - this is a crisis to tackle head on, because there are things you can do to navigate your organisation through the worst of it.

Firstly, how will charities and social enterprises be impacted?

• Rising energy bills will push up your running costs and project costs, particularly if you have large or older, energy-inefficient premises, or run lots of energy-intensive activities - for example activities involving cooking, electrical machinery or digital equipment.​
• Inflation is forecast to hit historic levels, so the cost of pretty much anything you need will increase - fuel, food, materials needed for activities, services provided to you by businesses.
• Increasing staffing costs - rising costs will impact your staff too, making it more expensive for them to travel to work, feed their family etc. In a sector already known for low pay, this will put pressure on charities to pay staff more - Pro Bono Economics previously reported that to ensure that wages don’t fall in real terms, charities would need to increase salaries by 8.8% between 2021 and 2024.

I'm a trustee of a charity whose electricity bill will rise from
£8k in 2019
to
£50k in 2023.

We're screwed.
This country, I mean.

You know what this means for businesses, charities, homeowners, industry, hospitals, schools?

Everything will *collapse*.

— tern (@1goodtern) August 16, 2022

As costs increase, the real value of existing grants and donations goes down. Again, let’s look at what Pro Bono Economics say: a grant worth £100,000 per year in 2021 will only be worth £94,000 by 2023, and a monthly direct debit of £20 in 2021 will have effectively depreciated to £17.20 by 2026. These figures are all based on inflation estimates that may already be too optimistic.

All this points towards you having to spend more to achieve the same impact - bad news, especially if you’re reliant on funders with antiquated views on how much things cost, and what they're willing to fund.

But charities can’t control inflation and rising energy costs - so what can you do in response?

1. Urgently re-budget

​Before deciding what action to take, you need to understand exactly how your organisation will be impacted. This will depend entirely on your circumstances and what you do.

I believe that every Board and senior management team should be meeting as a matter of urgency and going through their budget with a fine tooth comb. Involving your fundraisers in this exercise will help them to understand key issues and make a stronger case for support later.

For example:

• Plan for salary increases - particularly if you have staff on low pay, or whose salary hasn’t increased in a while, it’s likely they’ll be under financial pressure to renegotiate their salary or find a better-paid role. Affording salary increases in the current climate is difficult, but it's usually even more expensive to have to recruit and induct replacement staff.
• Understand how rising energy costs affect you - the cost cap figures and forecast percentage increases have been well-publicised, but the financial impact on the overall cost of your work depends on your typical energy bills and circumstances. As mentioned above, unfortunately organisations with older premises or energy-intensive activities will be harder hit.
• Look for where you're particularly vulnerable to cost increases - for example if your organisation uses a lot of fuel, if key supplier contracts are up for renewal soon, or if your landlord has a clause that enables them to increase your rent at certain points.
• Factor in rising service demand - this crisis will exacerbate many existing challenges, particularly for the most vulnerable people in society. For example, if you run an advice helpline or a mental health service, demand could increase significantly in the next year, further pushing up your costs.
• Include a generous year-on-year inflationary increase, particularly if you’re going to be applying for multi-year funding. Gone are the days when a token 2% annual increase for inflation will cut it - at least 10% now seems prudent, otherwise there’s every chance that a new multi-year grant will leave you unable to fully cover costs in Years 2 and 3.

Budgeting for these cost increases - both those that you have no control over, and those that you want to implement if funding allows - can be a stressful exercise. But it’s vital to look for these dangers ahead of time, as it'll put you in a better position to respond appropriately (see below).

The rising cost of energy is one of several current challenges for charities and social enterprises - and planning ahead is vital

2. Ask funders (and donors) for help

​As with other recent crises, how well the voluntary sector can survive the storm depends on whether funders step up to the plate. I'm really hoping they will, especially if enough people ask the right questions.
 
If you’re currently in receipt of a multi-year grant, contact the funder and explore whether it's possible to renegotiate the grant amount for future years, based on the unexpected and unavoidable rise in your costs.
 
If you’re considering applying for a new grant but the funder’s criteria are very restrictive - for example if they’ve had the same blanket rule for years about how much you can include for overheads - explain how your budgeting shows that this is no longer viable for your organisation, and ask whether they can offer any flexibility given the current crisis.
 
By doing a proper re-budgeting exercise in advance, as described above, you can make a more convincing argument to funders, and portray your organisation as financially responsible. Many funders did show an admirable level of flexibility and understanding during the pandemic, and they genuinely want to help, so don't be afraid to ask these questions. To give an example that we've shared previously:

I got this email from a funder who gave automatic increases to their grantees to adjust for inflation. Thank you! □

Funders: inflation has been brutal on nonprofits. Please increase your current and future grants to account for it. pic.twitter.com/CyjPdzCoPU

— Vu Le (with one E) (@NonprofitAF) July 26, 2022

And like I always say, if a funder’s restrictions or policies put your organisation at financial risk - for example, if they won’t include a contribution towards running costs or allow you to budget for inflation - don’t be afraid to walk away if necessary.
 
Asking for help applies to other fundraising audiences too. If I were a Fundraising Manager at any organisation right now, I'd be developing some honest and carefully-worded messaging about the impact of rising costs on our work, to share at the appropriate time with regular givers, major donors and corporate partners. Of course not everyone will be in a position to increase their donation, but few will resent being asked.
 
If any of the charities that I currently donate to contacted me to request a 10% increase in my monthly direct debit, to ensure they could sustain their impact amid rising costs, I’d be doing whatever I could to help.

3. Look for cost savings

This crisis isn’t your fault, but there will still be things you can do to make savings, even if this only makes a modest difference in the face of rising costs. 

For example, here's some excellent advice from small charity finance expert Liz Pepler on how some charities can make savings by claiming reduced VAT on fuel and power, as well as maximising Gift Aid:

Charities pay reduced VAT on fuel and power. It isn't always automatic. Often we need to apply. It's worth checking with providers. Conditions, as always, apply. Link here. https://t.co/L5t9fYu5Ia)

— Liz Pepler FRSA (She/Her) (@Embrace_Finance) August 22, 2022

Spend some time identifying your own biggest potential saving areas and researching cost-cutting techniques - there are many excellent tips out there. For example, I’ve heard of organisations compiling energy-saving tips for staff, changing cooking techniques and recipes, and reviewing routes and providing fuel-saving tips if they do a lot of driving. Just watch out for scams or anybody trying to sell you something that sounds too good to be true. 

Finally, some helpful links for further advice

• As mentioned above, Pro Bono Economics have published this excellent report on the impact of rising inflation and what it means for charity Boards and leadership teams
• The think tank NPC has published a comprehensive guide on how charities can respond to the cost-of-living crisis
• Barclays has published this article for businesses on the cost-of-living crisis, with advice on things like dealing with rising fuel prices and negotiating rental contracts.