For finance leaders in the charity sector, the past few years have brought a convergence of pressures that is reshaping both the role and the expectations placed upon it. Rising costs, volatile income and growing demand for services are combining to test financial resilience and to push finance teams further into strategic territory.
As one finance leader puts it, the ‘big squeeze’ facing charities is no longer a temporary phase but an embedded reality, with costs consistently outpacing income and forcing difficult decisions about priorities and sustainability.
Funding remains the defining challenge. Many organisations operate with a complex mix of income streams – donations, grants, contracts and public funding – and each has its own constraints and volatility. For some, this creates a structural imbalance.
‘Finance leaders need to play a more strategic role in order to build long-term resilience’
At Highland Hospice in Inverness, around a quarter of income is sourced from the NHS, with the remainder reliant on fundraising, retail and donations. Yet cost increases, particularly in pay and employer taxes, mean ‘we will need to raise another £500,000 just to deliver our existing services’, says its head of finance and facilities, Julie Douglas FCCA. The implication is stark: standing still is no longer financially neutral.
This pattern is echoed across the sector. According to the National Council for Voluntary Organisations, charities are increasingly having to subsidise services with voluntary income and reserves as rising costs outpace funding and demand continues to grow, particularly with the cost-of-living crisis continuing to affect vulnerable communities.
For organisations working on the frontline, this creates a dual pressure: more people need support, but the financial capacity to deliver it is tightening.
Cost challenge
Cost inflation has emerged as a critical pressure point, particularly around staffing. Consecutive increases in the National Living Wage (NLW), alongside broader wage inflation and changes to national insurance (NI), are driving up payroll costs across the sector.
Rebecca Hennessey FCCA, head of finance at LWTC Health Exchange, based in Birmingham, highlights the impact: ‘The biggest cost pressure has been the increase in the NLW; contracts have a fixed price for staffing, so it’s often something the charity has to absorb.’
For labour-intensive organisations, this is especially acute. Unlike in the private sector, there is often limited scope to pass on costs, particularly where funding is tied to fixed-term grants or contracts.
More frequent forecasting and downside scenario planning are now standard practice
Energy, premises and operational costs have also risen sharply, compounding the challenge. The result is a structural squeeze that requires both short-term mitigation and longer-term strategic thinking.
Rethinking resilience
Against this backdrop, the role of the finance leader is evolving. London-based Ildikó Prandóczki ACCA, international financial accountant East and Southern Africa at WaterAid, notes that finance leaders ‘need to play a more strategic role in order to build long-term resilience, not just focus on financial control and compliance’.
This shift is evident in the increasing use of scenario planning, cashflow forecasting and strategic prioritisation. Finance teams are modelling multiple outcomes, from funding shortfalls to delayed income, to help trustees and leadership teams make informed decisions.
At London City Mission, for example, more frequent forecasting and downside scenario planning are now standard practice, reflecting an acceptance that volatility is part of the operating environment.
Reserves and financial resilience are also under renewed scrutiny. Rather than viewing reserves as a static metric, many organisations are adopting a more nuanced approach, distinguishing between operational buffers, designated funds and strategic reserves.
Organisations must be clear about where financial risk is acceptable
This reflects a broader shift towards aligning financial planning with risk appetite and organisational strategy. The aim is to strike a balance: maintaining sufficient resilience to absorb shocks while ensuring funds are deployed effectively to deliver impact.
As London City Mission’s COO, Rui Domingues, notes, reserves should neither be hoarded nor run down to the point where ‘a relatively small shock would force drastic cuts’.
Impact vs sustainability
Perhaps the most complex challenge is balancing mission delivery with financial sustainability. For charities, impact is non-negotiable but it must be delivered within financial constraints.
This tension often requires difficult decisions. Organisations, says Domingues, must be clear about which activities are ‘core’ and where financial risk is acceptable, even if that means reshaping or ending programmes to protect mission-critical work.
Tools such as full cost recovery are becoming increasingly important. Prandóczki emphasises the need to ‘ensure that our unrestricted funds are used strategically and not for subsidising restricted grants’. Without this discipline, organisations risk eroding their financial base over time.
Alongside financial pressures, public sector bodies are also struggling with finding the right talent. While the sector continues to attract finance professionals motivated by purpose, there’s a shortage of those with specialist knowledge of charity accounting, tax and risk.
These are much needed in a world where the burden of compliance is growing. Changes to accounting standards, increased scrutiny from regulators and evolving expectations around risk management are placing additional strain on finance team resources.
For finance leaders, the message is clear: the role is no longer confined to stewardship. It’s about shaping the future of organisations operating at the frontline of society’s most pressing needs and doing so in an environment where uncertainty is the only constant.
