In recent years, charities across the UK have been facing extreme financial pressures which threaten their ability to deliver much-needed services. No one would have predicted the events that have defined the last five years, and they’ve transformed how people spend, donate and engage with charities.
Charities have also faced new challenges in recent months as the government has introduced welfare reforms at the same time as raising the National Minimum Wage, potentially increasing the demand for charitable services and increasing their outgoings.
So, with more people needing the support of charities’ services, but income streams not increasing to accommodate this, how can charities respond and plan ahead?
Traditional income streams for charities are becoming less and less reliable. Pressures on domestic incomes are likely to have a continued impact on individual giving, and the well-documented crisis in local government funding means that service provider contracts will be fewer and lower in value.
As a result, charities need to look at options to diversify their income streams. The Kreston Charities Report 2025 shows that 63% of charities are already exploring this, and 25% are open to doing so in the future.
Options to diversify include growing major donors, grants, trusts and foundations, legacies, and corporate giving. Applying for grants from various foundations and trusts can lead to significant funding for specific projects, and developing strategic relationships with businesses can bring corporate sponsorships, donations or in-kind support.
By exploring these options, charities can reduce their reliance on a single income stream, such as individual donations, and enhance their financial stability.
With demand for their services increasing, it’s important that charities have the team members required to deliver these services. The Kreston Charities Report 2025 shows that 44% of charities are finding it hard to recruit and retain employees, so it’s clear that they need to adopt new recruitment strategies to tackle this.
One option is to offer incentives for employees in line with other sectors, and this could include increasing salaries, offering more flexible hours and remote working, increasing holiday allowances, offering private healthcare or introducing company cars. However, introducing perks like these must be carefully considered, as although they will help to keep and attract team members, they all come at a cost to the charity, at a time when they’re already facing financial challenges.
Another option is to focus on volunteer recruitment, which offers a cheaper alternative. Volunteers provide a vital service in the charity sector, allowing their work and services to continue without any financial impact - so this is something that all charities should be considering.
There are a number of financial risks anticipated for charities, so senior leadership teams and board members should have risk management plans in place to deal with them.
According to the Kreston Charities Report 2025, the risks that charities are most concerned about this year include reduced funding, increased demand, recruitment pressure and new rules/regulations.
All charities should have a risk register to allow them to identify, track and manage potential risks, and it’s recommended that these are regularly reviewed - whether that’s annually or at each board meeting. Implementing reserve policies, cashflow forecasts and cash management strategies should all play a part in a charity’s risk management, too.
With the current landscape and more challenges on the horizon, charities need to plan carefully to ensure they have the resources to deliver their services. Whilst many steps have already been taken to mitigate risks, the sector must continue working to increase its resilience, whilst providing vital services to some of the most vulnerable people in our society.
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