If you were a cynical person you might wonder why we have yet another charity story in the media now. After all, the problems at Kids’ Company have been around for a while, there seemed to be a perfectly sensible plan in place to deal with it (send charismatic but bit bonkers founder upstairs, find someone who can add up and take away to run the business) and it suddenly blows up and ends very messily.
After all the other attacks there have been on charities since the Tories win an unexpected majority in the election, quickly followed by scores rapidly being settled…
But of course my twenty plus years in the charity sector have left me completely cynicism free so I’ll put this all down to coincidence.
So I’ll avoid the who did what when and whose fault it was stuff and I’ll concentrate on some lessons that can usefully be taken from this sorry mess.
And there are plenty. I know nothing at all about providing effective services to vulnerable young people. But I know a bit about how you run a voluntary organisation in a way that doesn’t mean you collapse because you can’t make this month’s payroll.
One the face of it Kids’ Company was a fundraising success story. It was a £23m organisation by 2013 and its income had increased by 77% since 2009. It seemed to have a diverse funding base, despite all the attention on government grants to it, less than half the money came from statutory sources. And, interesting, the great majority of income (nearly £16m) was unrestricted.
The charity clearly had some great donors who are name checked in the annual report (Coldplay gave over £8m in total for instance). Major philanthropists and trusts gave large unrestricted grants. Fundraising costs were very low, only £1.2m, (8% of voluntary income).
And yet they still went bust.
So what went wrong? Well financial management of the organisation does seem to have been, well unconventional. The charity appeared to have grown its services without regard to whether they could fund them. Despite all the unrestricted income they didn’t grow reserves to anything approaching a sensible level. Money went out as fast as it came in.
And the fundraising model once examined looks deeply flawed. That low fundraising expenditure should actually have been a warning sign. What it meant was that the great bulk of income was actually dependent on a small number of major donors. There seem to have been very few multi year funding agreements. No investment in longer term income streams such as an individual giving programme (despite high visibility and a strong cause). This was a house of cards.
It’s ironic that at a time when the fundraising profession is under sustained attack from many of the same people now demonising Kids’ Company, that what the charity really needed was a proper fundraising strategy. A proper plan, developing a range of diverse income sources, providing stable, long term income.
And a focus on developing strong donor relationships. The charity’s basic fundraising approach seemed to be a succession of emergency appeals. Fund us or we go bust and the kids suffer. Whether the funder is the government or private donors, this only works for so long. Patience with this approach wears out pretty quickly.
As we have now seen.
The reality is that a philosophy which only focusses on service delivery in the short without developing a stable funding base is simply irresponsible. Funding can’t be an add on, something to worry about when the cash starts to run out. Making a virtue about spending every penny on the services and not ensuring that the business basics are in place is just self indulgent.
If the trustees of a few charities wake up to their responsibilities and take a hard look at their funding strategies and business models, maybe some good will come out of this fiasco.
Not much consolation to the kids though.