The reaction of media and columnists following the collapse of the children’s charity, Kids Company, illustrates the double standards affecting the charitable sector.
The charity provided support and services to 35,000 underprivileged and vulnerable children through its network of care centres.
The dilemma for Kids Company is that to maintain the support of this vulnerable group it lived hand-to-mouth spending on services as fast as it found funding with the result that it had little reserves to guard against a drop in income. Morally could they really turn their backs on vulnerable children whenever it faced a dip in income when surely extra donations would come along shortly to bridge the income gap? And of course funding would be found, usually.
Kids Company, like so many charities, exist in this way.
The sensible approach, of course, would be for charities to build up a level of cash reserves to guard against the bad times. This pragmatic approach is taken by businesses and many institutions, yet charities that do so are frowned upon.
Charitable Trusts that provide grants to good causes are less inclined to award grants to charities and non profit organisations if they have reserves of more than six months of operating costs, consequently the bulk of the charities in this country operate near to bankruptcy. Media organisations report negatively on charities that have built up reserves.
So Kids Company operated in this daft situation of operating with no cash reserves, ever increasing numbers of clients and fluctuating finances. Perhaps it is not surprising that sooner or later it would fail.
KM Charity Team would not have survived the recession if it had not built up cash reserves.
Over two of the years of the recession my own non profit organisation, the KM Charity Team, suffered losses of £18k in 2012 and £47k in 2013. If we had not built up modest reserves we could have sunk. The price of our reserves – apart from the fact we still exist and play a useful role in community of Kent – is that funding trusts rarely support us.
If we are to reduce the chances of charities such as Kids Company failing in the future then we must change this British attitude that charity should be run on a shoestring. Charities must be encouraged to build up reserves and operate in more business-like ways.
The level of reserves is only one element of this. The balance of demand versus funding is also critical and that means hard choices have to be made even when trying to help the most vulnerable, but it is time to shift attitudes towards the charitable sector and allow them – require them – to operate in a more business-like manner. The charitable sector is too important to fail.