Charity leaders warn financial survival cannot come at the expense of people and purpose

Charities risk damaging their ability to deliver long-term impact if their financial decisions come at the expense of people, culture and mission, new research has found. Whilst financial sustainability is the dominant pressure currently facing charity leaders, a national survey of 72 charities reveals the increasingly difficult balancing act facing charity leaders as they seek to remain financially resilient while continuing to deliver their missions and maintain healthy organisations.

Commissioned by education charity Services For Education, the findings reveal that financial pressures facing charities manifest themselves through funding gaps, contract losses, inflation, National Insurance increases, low reserves, salary pressures, local authority or government changes – and the need to diversify income. For many charities, these pressures have led directly to restructuring, changes to pension arrangements, delayed pay decisions, reduced delivery, new fundraising approaches or a re-examination of business models, the report says.

Most respondents said that financial sustainability was attracting most of their leadership attention, scoring 4.58 out of five. Impact/mission delivery followed at 4.04, while organisational culture scored 3.7. When asked which area was currently under the greatest pressure, 40 respondents – more than half – identified financial sustainability. But the research, contained in the report ‘Leading Through Uncertainty,’ suggests that the headline figures tell only part of the story, with narrative responses adding important perspective. Culture is often where financial pressure is felt most acutely, through workload, morale, wellbeing, restructuring and the difficult human consequences of sustainability decisions.

Charity leaders report that financial pressure is frequently being experienced through its consequences for people and organisational culture – including increased workloads, restructuring, difficult salary decisions, reduced staffing, morale, wellbeing and the capacity to maintain services. The report argues that successful leadership is therefore not about choosing between financial sustainability, impact and culture, but about maintaining a dynamic balance between all three.

The research was instigated by Sharon Bell, Chief Executive of Birmingham-based Services For Education, following discussions with charity leaders at recent Charity Finance Group and ICAEW Charity Community conferences. She said that the relationship between impact, financial resilience and organisational culture emerged as a recurring issue.

“The financial pressures facing charities are very real, but I wanted to understand what happens when those pressures reach the boardroom and start influencing the decisions that determine an organisation’s future,” said Sharon.

“What struck me most from the research is that financial sustainability, impact and culture are not competing priorities. They are interconnected. Financial sustainability enables organisations to deliver their mission; culture enables people to adapt and respond; and impact is ultimately why the organisation exists.

“The danger is that culture can become the hidden casualty of financial pressure. It may not appear to be the biggest problem on ‘the dashboard,’ but if people are exhausted, morale is falling and organisational confidence is being eroded, the consequences will eventually affect impact. This research is intended to encourage a more honest conversation between trustees, chief executives and their teams about the difficult choices charities are having to make – and how those choices can be made in a way that protects both the organisation and the people it exists to serve.”

The research also identifies evidence of a sector responding proactively rather than simply cutting costs. Respondents described strengthening governance and financial reporting, improving reserves management, diversifying income, redesigning services, investing in impact measurement, embracing digital transformation and developing new approaches to service delivery. In several cases, financial pressure had acted as a catalyst for innovation rather than simply retrenchment.

Strong governance emerged as a particularly important factor in enabling organisations to manage competing priorities. Respondents highlighted the value of effective trustee oversight, diverse board skills, constructive challenge, succession planning and leadership development.

The report concludes that resilience is not created by financial discipline alone. It depends on the quality of leadership and governance conversations, making trade-offs visible, protecting organisational health and ensuring that mission and beneficiary outcomes remain at the centre of decision-making.

“For charity boards and leadership teams, it poses a fundamental question: when financial pressure increases, are they protecting the organisational culture and capacity that will ultimately determine whether their charity can continue to deliver its mission?” said Sharon.

• Read ‘Leading Through Uncertainty: How Charity Leaders Balance Impact, Financial Sustainability and Culture’ for free

^{Services For Education has an annual income of around £7m and is supported by Arts Council England, charitable donations and its commercial operations.}

^{*the views expressed are the author's and not ICAEW's}