Helping you prosper

Does not-for-profit mean not in business?

At the same time public trust has waned. Does the average person still prefer charities to be run by well-meaning amateurs? How can we reconcile public expectations with business-like strategies?

Perception is everything

Certain events reported in the press earlier this year made the public aware that some of the celebrities they see endorsing charities are in fact doing it for money. The public have also realised that it is becoming increasingly common for charities to pay large-corporation-sized salaries to their chief executives, and to enter into promotional contracts with big businesses. 

The public does not expect a not-for-profit organisation to make a profit, but making a loss isn’t an option either. Perceptions can often be resolved by careful use of terminology: businesses make profits for their owners or shareholders; charities need to make surpluses to reinvest in their core activities, to build up reserves, and to expand their charitable work.

Market forces

Whereas a business should never be run like a charity, there are many good reasons for running a charity like a business. If a charity is to achieve its objectives it needs to recruit the best people for the job. This means competing with commercial organisations for good executives and managers. Such people need to be motivated not only by a salary at the market rate but also by opportunities for promotion, personal development and influence.

Planning and control

Like any business a not-for-profit organisation needs to have clear goals and strategic planning to shape its fund-raising policies. The planning needs to be competent, include alternatives in case targets are missed, and a safety net for if things go badly wrong.

Running a charity like a business means taking firm control of costs and understanding income streams, present and future. At the same time it means taking carefully calculated and costed risks. Capable, professional and well-trained staff (whether paid or voluntary) are essential for this. And if the charity depends on raising funds from the public, corporate donors or trusts, a business-like approach is essential. For larger organisations a professional fund-raising team is usually desirable.

Workers

So is a charity or not-for-profit organisation just a business that describes its activities in a particular way or is there more to it? A local village museum is a registered charity and is run efficiently and in a professional manner. Nearly all of its staff are unpaid. They do the job because they love it and they enjoy a warm relationship with their visitors, many of whom are children from deprived areas who are granted free entry.

The general public are charged to enter but many of them generously give more because they too believe in the museum’s educational mission. This highlights the point at which charity and business diverge. Of course it is possible, and usually desirable, for a commercial organisation to encourage its employees to share its objectives, but the bottom line is that they work to earn a living. On the other hand most charities could not survive without volunteers who have enough passion to work for no monetary reward.

Customers

Fundraising has much in common with selling, but there are major differences between a business’s and a charity’s relationship with those who might be termed customers. These fall into two categories which are not necessarily mutually exclusive: those who are variously referred to as donors, sponsors or supporters; and beneficiaries. The first group, the supporters, sometimes ask what percentage of their donations is spent on administration. Some have started to view the way that larger charities promote themselves as too commercial or aggressive. Two experiences have illustrated opposing outlooks to me during the last 12 months.

A friend of mine took his grandchildren to a site owned by a large heritage charity and was pressured to enrol the children as members. A fundraiser hinted that he would get more commission if he signed a direct debit. The opposite experience was a phone call he received from a charity he regularly supports. The purpose of the call was to persuade him to increase his giving, but it was done sensitively; time and care were taken to capture his imagination. The caller was passionate about the cause and eager to tell the story of how my past and future donations were used. 

A balancing act

For trustees and managers this is a hard balancing act and it is where the real skill lies in running a charity. The organisation has to be run with business-like efficiency to ensure that income streams are maximised, assets are protected and reputations kept intact. But arguably charities need to be even more skilful than most businesses in managing their people, not only the paid staff but also the volunteers, supporters and donors. 

The next step

If you need advice on any aspect of managing your charity, please get in touch with your local UHY adviser.

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