April's thoughts - exactly how like business are charities?

I was in conversation with a local businessman recently discussing the economic situation and prospects for both our organisations. He said ‘of course it’s different for us in private business’. His inference was that charities somehow had it easy. Charities are seen in a different light from private business and I agree they are different, but my question today is how different?

Charities don’t exist to make profit but they do have objects they want to achieve and funders who measure their success. Perform poorly and the money stops coming in.

Charities may not have shareholders, but they do have stakeholders, people and organisations that use and fund charities activities. Charities ignore their shareholders at their peril.

Competition is often seen as something that happens in a cut throat way between supermarkets and other businesses. However many charities compete with private businesses in the open market for contracts and against each other for support from the public.

The pound in people’s pockets is being spent with greater discernment as a result of the recession, but successful retailers and successful charities have still been able to increase their income and sales.

Globalization and the growth of multi national companies have strongly shaped the business world, but it also is something that affects local charities. We have a slow increase in national charities winning contracts and providing services in the county. But what happens when head office decides Cumbria is no longer a priority and a service closes (as recently happened with a national children’s charity). Our indigenous charities by their very nature, as with our locally owned businesses, retain a loyalty to the people they serve.

Charities need to build brands, develop the markets they serve and sell their services just as private businesses do. Innovations in social care, education and the environmental movement have all come from charities. Many of our charities are as entrepreneurial and quick on their feet as any modern business. They are able to spot an opportunity and respond accordingly. Their investment capital may not come from a bank or the sale of shares, but rather a grant or a legacy.

Businesses and charities all operate under the same legal framework. Charities quite rightly receive no concessions when it comes to the law and health and safety. Charities are exempt from corporation tax but pay VAT like all other businesses.

One area which charities receive significant scrutiny over and which passes almost without comment in the world of business is that of administration costs. No one wants to see money wasted, especially if it’s being given to a charity. However no one asks the check out operator how much does Tesco spend on administration when they buy their groceries. Very rarely does anyone ask ‘is there enough money spent on the management and administration of a charity’. However a lack of administration can be far more dangerous than too much.

I would like charities to be closely scrutinized to check they are using their money well, but with the recognition that they operate in broadly the same world as businesses.