Learning from a past financial crisis

By Pete Johnson, head of business development at ACEVO.

There is a fine line between being prepared and on the front foot and being perceived as a scaremonger who stokes fear and scares people. After the collapse of Silicon Valley Bank and Signature Bank in the US, the turmoil in the financial system spread to a European bank, Credit Suisse, which was bailed out. There is concern that our next crisis will be a repeat of the 2008 global financial crisis.

I will look back at some of the effects of the last financial crisis and list what I think charity leaders should be thinking about. In the worst-case scenario, they can navigate their organisations better.

Effects

The 2008 financial crisis had a huge impact on UK charities.

There was a reduction in funding and an increase in demand. In the wake of job losses and financial instability, charities that help people with debt, housing, and employment saw a huge spike in demand. Some charities shut down, especially smaller ones. Because there was more competition for funding, charities had to better prove their impact to get grants and donations.

The amount of charitable giving declined by 11% during the recession. It was a combination of fewer people giving and smaller average donations.

Considerations

1. Make sure you diversify your income: don’t rely too much on one major funding source. Many charities relied on government or trust funding in 2008. Government funding was cut, and grant applications were more difficult to secure as funders tightened or changed criteria. To keep a balance and reduce the risk of overreliance, charities should look at their percentage split of current income streams. Next you have to find a range of income sources, like individual donors, corporate partnerships, social enterprises, and trading.
2. The financial crisis forced many charities to focus on maximizing their impact with every pound spent, while operating efficiently and effectively. To stay efficient and reduce costs, you should regularly review your operations. Include stakeholders not usually part of your leadership team in this process. Let junior colleagues and volunteers share their opinions, as they’ll know how your charity runs. (Suggested reading: Charity Commission’s Charities and risk management guidance)
3. Donors will be more cautious about giving to charity during a financial crisis, so you need to build good relationships. Keeping donors informed about how their giving is used, showing gratitude, and being transparent about how donations are used are all part of this.
4. Demonstrate your impact. Charities should prioritize impact measurement so they can demonstrate their effectiveness. This will also help you to improve operations by measuring your impact.
5. The financial crisis of 2008 showed that economic uncertainty can have a big impact on charities. In case of an unexpected event, such as a drop in funding or an unexpected disaster, charities should have contingency plans. To do this, you need a financial reserve, diversified funding sources, and a crisis response plan.

As a result of the 2008 financial crisis, charities need to be proactive, adaptable, and focused on maximizing their impact. Charities can become more resilient by diversifying funding sources, building solid relationships with donors, prioritising impact measurement, and preparing for uncertainty. While the last three years have been tough, in some ways they’ve prepared you for a global financial crisis should it occur.