Advising on setting up a new charity
Although it was probably some time since your own charity was established, there may come a time when those wishing to start their own charitable organisation ask you for your advice or practical assistance. Many trustees are delighted to find themselves in a position to be able to help those starting out with setting up their own charity and are eager to pass on their pearls of wisdom.
But if the charity you’re already involved with is long-running and well established, it’s worth being aware that things may have changed in recent years and setting up a charity may no longer be quite so straightforward.
For smaller charitable initiatives the challenges start early. As a result, passionate individuals spurred to action to promote causes close to their hearts can be discouraged by lengthy processes inherent in the charity registration process. It has also been suggested that this process will become more complex as the Charity Commission revealed last year its intention to make setting up a charity more difficult in an attempt to deal with duplication in the sector.
Climate of austerity
In addition, the UK’s current climate of austerity has left many established charities facing threats to cash flow, facing 'donor fatigue' and finding it difficult to access new sources of funding and support. This is hard enough for existing charities, but for start-up charities attempting to launch in this hostile climate, the challenges this poses can be overwhelming.
Before you start giving advice to charities starting out, it’s worth considering the following:
- Has the registration process changed since your own charity was established?
- Are there other charities offering the same services?
- Is it in their best interest to set up as a registered charity from the outset? Are they financially ready to register?
Let’s consider each of these in turn…
Has the registration process changed since your own charity was established? Before you are able to give realistic and up to date advice to anybody hoping to start their own charity, consider that things have changed in the sector recently. The Charity Commission itself is likely to have evolved since your own charity was founded and is currently going through a period of further changes as a result of recent budget cuts.
Financial challenges have seen £450,000 cut from the Charity Commission's budgets over the past few years with more to come and this has led to changes in its strategic framework and operations. The Commission has openly stated that it may have to withdraw services, change the way it interacts with charities, and refocus its regulatory approach, all of which will make the landscape for emerging charities very different to the one your own charity probably launched in.
For anybody offering advice to start-up charities, familiarising yourselves with the recent changes and proposed modifications would be a good starting point so you can be confident the advice you are offering is based on the current climate.
Are there other charities offering the same services? One of the major focuses for the Charity Commission at present is the issue of duplication in the sector and this is a serious consideration for anybody setting up a charity at present.
Already crowded marketplace
In the 2013/14 financial year, the Charity Commission received 6,661 applications for new charities in England and Wales, a 16% rise on the previous year. As these and existing charities compete for resources, potential founders are being urged to genuinely consider whether they are able to make an impact in an already crowded marketplace or whether their efforts would be better directed into an already operating charity.
It may be appropriate to recommend that contact is initially made with existing charities which have a similar remit to see if cooperation or collaboration might be a better route to take. As mentioned, the Charity Commission has expressed its intention to cut down on the amount of duplicate charities and believes that too many people set up a new charity without establishing whether there is a genuine need or whether another charity is already doing similar work.
What one sees time and again is potential founders wishing to set up a charity because the cause is one to which they are emotionally attached. For example, when a relative passes away due to a particular illness this often prompts the establishment of a charity to research or support treatment for other sufferers.
These are obviously admirable motivations but anybody advising these start-ups should perhaps see their role as more of a dispassionate observer in a position to offer tempered advice. Perhaps it would be more beneficial in the long run for you to be the one to advise them that their ambitions would, in reality, be more worthwhile if they combined with another charity already offering similar services instead of competing for the same "donor pound".
However, if you are confident that the potential charity you are advising is offering a proposition that doesn’t already exist elsewhere, a different but equally sensitive conversation may be on the cards.
Without dampening their enthusiasm, as an adviser it would be judicious to forewarn them that setting up as a registered charity means they will face a long road with many stumbling blocks and they should be prepared for the difficulties that may lie ahead. That’s not to say that these potential start-ups should be discouraged from proceeding, but rather that they should be encouraged to consider all the options.
Is it in their best interest to set up as a registered charity from the outset and are they financially ready to register? Running a charity is not something to be entered into lightly and, with the amount of paperwork, regulations and difficulties in operating in a climate of austerity, careful consideration needs to be given to whether setting up as a charity is actually the right decision.
Without a charity number
While becoming a registered charity from the outset is the route that most people choose to go down, some charities would be better served by initially operating without a charity number, focusing instead on learning how to run the charity in a business-like manner until they are ready to apply for their registration.
For some this is a practical matter where they are financially unable to become a registered charity at the outset. Charities whose annual income is likely to be less than £5,000, for example, are unable to register with the Charity Commission under current rules. It then becomes impossible to open a charity bank account without being a registered charity - some banks insist on an HMRC number, and others will only recognise registered charities - which leaves start-ups in a Catch-22 situation.
One charitable initiative, which supports survivors of sexual abuse in Uganda, found itself caught in this situation. Its founder felt passionately about setting up the charity, but then spent six months having charity bank account applications rejected until she was able to come under the wing of our special programme where we set up a bank account for her to operate and become better established.
For others, becoming a registered charity should be something they work towards rather than an assumed starting point. Even if they could apply for their charity number, it shouldn’t always be presumed that they should. It’s often assumed that charities can’t operate at all without a charity number, but actually there are a number of things they can do which will not only put them further down the path towards registering with the Charity Commission, but will also make sure they have strong and, essentially, proven foundations.
Starting out without a charity number gives founders the opportunity to prove the idea and find their trustees before applying for registration. All registered charities need to submit accounts, so familiarity with profit/loss, knowledge of how to navigate a balance sheet and the presence of structure and contingency plans are all worthwhile goals before taking the next step to apply for official registration.
In the case of charities set up for heartfelt or intensely emotional personal reasons, allowing time to get used to the administration and paperwork involved in running a charity before registering will give them the opportunity to "test the waters" and come to an understanding of the practicalities involved rather than being driven by feeling passionately about the cause.
Establishing a structure first
Charity start-ups should be given guidance the opportunity for and help in putting business and governance structures in place before they apply officially. There should be guidance to think carefully about how to prioritise and operate on a smaller scale before moving onto their larger overall ambitions. They should be working out income, costs and budgets and learning basic accountancy in advance of submitting the accounts they will need once they are a registered charity.
Of course registering with the Charity Commission once a charity is established and financially stable enough to become independent is still the ultimate goal for most charities. The benefits are obvious – the charity will be seen as more serious and "heavyweight"; it will be able to claim Gift Aid; it can handle larger sums of money; it is regulated so therefore more appealing to volunteers, donors and potential trustees.
For most charities, becoming an independent, registered charity is absolutely the right thing to work towards but start-ups should be advised to be measured and think professionally, not emotionally, about their core proposition and the day to day running of the charity as their priority.
If you are in the privileged position of being able to help and guide somebody wishing to set up their own charity, encouraging them to take the time to carefully consider the points discussed here could be the best advice you give.
