3 challenges facing charities in 2024 and how to address them

Increased operating costs, increased legal obligations and cyber security threats are amongst the variety of challenges currently facing charities and those in the not for profit sector. Added to this, many are experiencing a reduction in donors but an increased demand for services. To help navigate the impact of these pressures, charities may need to adapt, strategise and innovate to remain resilient.

1. Economic challenges impacting charities’ operational costs

Organisations have had to deal with increased operating costs over a prolonged period of time. There are many reasons for this, with the biggest being Covid-19, which was then followed by the Russian invasion of Ukraine, and a subsequent huge rise in energy costs. The knock-on effect has been an increase in inflation and bank interest rates, which strain charities’ already limited budgets. Charities are constantly dealing with the challenges of depleted reserves and how to increase income streams. Coupled with this, the cost-of-living crisis has led to a to a reduction in donations, but at the same time, an increased the demand for services.

Cash flow forecasting

Cash flow planning can help your charity manage future cash flows in the face of continued inflationary pressures. By considering cash flow forecasts, payroll budgetary tools aimed to assist with forecasting, and re-forecasting fluctuating staff costs, this will put your organisation in a better position to manage the impact of economic pressures.

2. Increased legal and regulatory obligations for charities

Inflation also means more organisations are likely to exceed a number of thresholds, including the Gift Aid Small Donations Scheme, audit requirements, VAT registration, and more. This could have a significant impact on administration and cost.

Charity Audits

Despite recent proposed changes in the corporate sector, the charity audit threshold remains at £1m of income (£500k in Scotland). However, whilst it may not be compulsory for smaller charities to undertake an audit, doing so not only ensures financial statements are accurate, but can identify opportunities for improvement and growth, identify any areas of risk and ways to operate more efficiently.

VAT compliance complexities

VAT can be complex and the advice of a specialist in the not-for-profit sector can help charities navigate the VAT liability of income streams, complex partial exemption queries and ensure compliance.

Verification and digital compliance

Additionally, not-for-profit organisations that are companies limited by guarantee are facing a new challenge under the new Economic Crime and Corporate Transparency Act. The aim is to provide improved transparency and more accurate and trusted information on Companies House registers, driving confidence in the UK economy. From a practical perspective, anyone setting up, running, and controlling a charitable company in the UK will need to verify their identity. Also, the way annual accounts are filed is changing, including the introduction of software-only filing.

3. Cyber security threats

Charities have to keep up with the latest technological changes to be able to engage with younger audiences and donors, but with this digital shift comes risk as it can expose your charity to a multitude of cyber security threats. Unfortunately, charities are often seen as a soft target and are increasingly being pursued.

Identifying potential risk areas

To safeguard sensitive donor personal and financial information, it is crucial to pinpoint potential security vulnerabilities through regular risk assessments. Armstrong Watson now offers a Cyber Security Solutions service and can provide expert advice and guidance to help protect your organisation, including employee security awareness training and Cyber Essentials certification support.