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How can leaders and managers prevent the collapse of charities? Leaders Now blog from Don Macdonald

How can leaders and managers prevent the collapse of charities?

Posted on October 23, 2017

Don Macdonald, a trainer, trustee and former charity CEO, is writing a series of New to Management blogs for us. His new book, Twenty First Century Skills for Nonprofit Managers, published by BEP, is available to buy now. 

As charity leaders and managers, we have all received rejection letters or emails from funding agencies or trusts, some of which in turn threatened the future of our organisations. The first duty of a charity is to survive, and according to management consultant Peter Drucker, management is obviously instrumental in leading the organisation through difficult times and ensuring survival.

There are recent lessons from the private sector about this. Provident Financial radically changed its business model, switching over sales staff and customers to Internet use, and changing from local part-time staff to full-timers. Debts rose and profits fell drastically because traditional customers were averse to this approach. The shares crashed out of the FTSE 100 and the CEO had to leave.

Why do charities collapse?

There are numerous reasons why charities collapse or close down, some of which overlap.

  • The need which they were set up to overcome no longer exists, or never really existed in the first place; 
  • The need still exists but the funding disappears e.g. training charities after the introduction of the UK Work Programme;
  • The business model is all wrong;
  • Malpractice or mismanagement.

One of the most destructive cases is when a founding CEO directs the organisation on the wrong track. An example was Novas Scarman, founded in 1998 as a care and homeless charity, which crashed from a 2008 turnover of £21 million to closure in 2012, with redundancy for 300 staff.

However this also happens to long-established organisations. The English YWCA, set up in 1855, has virtually disappeared, yet the YW pioneered really interesting youth work in the 1950/60s, including outreach work with young women and men. The YW also provided 4,000 beds for young woman, centrally managed in 1996. After this, the YW was hit with a huge demand to install essential fire precautions in its hostels; it had not saved sufficient funds for these, so they sold all their hostels and carried on with youth work, rebranding as Platform 51 in 2010. Two years later, as Civil Society reported, ‘Platform 51’s spending ... (had) outstripped its income by more than £1m each year since 2008.’ So in 2014, it transferred its remaining youth work to another charity and became a small research and lobbying organisation.

Yet if you take the right action at the right time, it is possible to rescue an organisation from severe deficits. The UK Outward Bound Trust had a deficit of £3 million on a turnover of £8/9 million in the 1990s and was ‘close to insolvency’ according to its current director. It was turned round by an interim CEO, who had run the Duke of Edinburgh Awards, through a process of restructuring and offering shorter courses.

Do’s and Don’ts

So what should a manager or leader do to prevent such issues?

  • Show leadership, be resilient, don’t panic and seek help and advice;
  • Always keep on top of the finances; 
  • Think long-term, stay well-informed to predict trends, and produce a realistic work plan which should be regularly updated to look ahead for at least three years;
  • Do not put all your eggs in one funding basket - diversify so that if one fund winds up, you have other options; 
  • Do keep evolving, but change a winning formula gradually - not so radically that success is destroyed;
  • Carry out a regular risk analysis and save for emergencies.

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