Scottish charities remain optimistic about financial future despite figures showing 40% in deficit.
Scottish charities that spent more than they earned last year still believe their organisations will prosper this year.
Recent figures on the economy of the Scottish third sector found that despite income rising to nearly £5bn last year, around 40% of organisations ended the year in deficit.
Employment agency the Wise Group, Children’s Hospice Association Scotland (Chas) and Lloyds TSB Foundation for Scotland were three of the biggest Scottish charities that ended 2013 having spent more than they earned.
They told TFN this week, however, they were confident their organisations had sustainable reserves to see them through the tough times, with some even planning to expand services over the next few years.
Government contracts have changed...That’s the nature of the current climate, so we’re moving on to other areas - Laurie Russell
Figures compiled from OSCR’s annual returns and data from the Scottish Housing Regulator show a significant proportion of Scotland’s charities reported a deficit last year.
The figures show organisations in the smaller income bands – from £10,000 to £1m – delved into reserves with over two out of five spending more than they got in.
Organisations at the top – with an income of between £1m and £5m – are not immune either, with one-third reporting a deficit.
The Wise Group, once one of Scotland’s biggest social enterprises, has seen its income plummet from an all-time high of £32m in 2010-11 to a deficit of £3.4m on an income of £8.4m last year.
Its chief executive Laurie Russell told TFN the drop in income was due to winding down of contracts related to the Work Programme.
While it has lost almost £20m and shed over 300 jobs, the organisation is positive about the future and is looking to expand into new service provision.
“We had to use a significant proportion of our reserves to survive 2012 but in 2013 there will be a minimal deficit and we’re feeling very positive for the future,” he said.
“Government contracts have changed in that they are pay-by-results and predominantly suit private sector groups better.
“That’s the nature of the current climate, so we’re moving on to other areas where we can provide services and build income.”
Major funders too have reported substantial deficits. Lloyds TSB Scotland which funds many smaller organisations across the country, reported a £9m deficit on a £900,000 income.
The shortfall was made-up from its reserves.
The foundation’s Catriona Henderson said the deficit was directly linked to the banking group’s loses – which is directly related, on a sliding scale, to the amount the foundation receives – but that trustees had resolved to keep meeting the short-term needs of the sector by maintaining current grant levels.
She added: “We fully expect our income will increase as predictions state that the bank will be making significant profits in the near future.”
Despite these deficits the third sector continues to grow. Last week TFN revealed the third sector now employs twice as many as Scotland’s energy sector.
Fraser Hudghton, national manager at Institute of Fundraising Scotland, said there is no doubt the financial environment over the last few years has put additional strain on charities’ ability to source income.
He added: “It seems all too common to hear stories of charities struggling to meet public demand for their services, at a time when they too need to ensure income to maintain operations.”