DESPITE evidence that a merger can have a wide range of benefits in the not-for-profit sector, it seems to be an option that charities are shying away from.
There are 167,000 registered charities in England and Wales – and this figure doesn’t include charities with a turnover of less than £5,000, as they don’t need to register. There has been a stark reduction in charity funding over the past five years. This has ultimately resulted in multiple charities working towards the same cause while competing for the same pot of money.
In 2015-2016, there were 54 mergers from a population of 160,000. That represents 0.07 per cent of registered charities, and even with funding getting tighter, this figure is down on the previous year. To compound this, last year there was a net increase in the number of new charities being registered.
Perhaps it is time for organisations to look more closely at the possibilities of working with, and enhancing the work of existing charities. This would potentially be more valuable to the ultimate beneficiaries rather than a new charity with similar charitable objectives starting from scratch.
Additionally, there are many benefits arising from charity mergers. Firstly, they can increase the efficiency of a charitable organisation. In the case of two very similar charities, they often fund the same research projects, and on occasion, have trustees in common. Merging can streamline overhead management, reduce the space, and costs relating to database management along with the many other support functions while benefiting from greater income generation opportunities and a broader trustee base.
Merging can also aid fundraising. New forms of fundraising can be considered, because it’s much easier to forge new funding relationships when a charity is not duplicating the work of other organisations. Potential donors are often more willing to support one charity and one cause wholly, instead of splitting their donations between two different organisations that are working towards a similar goal.
So, given the positives a merger, why do very few not-for-profits choose this as an option?
To start, mergers tend to be more productive and have more positive outcomes when they are conducted from a position of financial strength, after a clear strategy has been planned out. However, it tends to be an option that is ignored by charities up until the final moments of financial difficulty. A prearranged merger well before any financial trouble arises puts both parties in a far more robust position when considering problems such as integration and management succession.
As with any sufficient change to infrastructure, there may be employees who lose their jobs, or at least have to alter their way of working. This can be an unpalatable decision to make. However, as charities, it is important that not only internal infrastructure is secure, but also that beneficiaries are put first and, therefore, that money is spent in the most efficient way possible.
Another reason for hesitancy when considering a merger is that they can be, financially speaking, agonisingly difficult to pull off. Pension liabilities and the cost of merging are two areas that need close attention.
In all cases, it is advisable to seek external advice when considering the future of your charity – and well before any financial problems begin to rear their heads.
Mergers can be something of a taboo among charities. However in many cases, where they are managed and carried out diligently, they can be of great benefit to the public, and can reduce the amount of duplication and unnecessary competition within the sector.
David Owens is a partner responsible for looking after numerous charity clients and has worked at Hawsons throughout his career.
For more information or advice on anything covered in this article, please contact David on or 01604 645600.