How organisations are funded

Rate this page

Rating statistics for this page

4.0 out of 5 from 27 votes

Breakdown

15 votes

5 votes

2 votes

3 votes

2 votes

• How are organisations funded?
• Who is most vulnerable to cuts in statutory funding?
• How is income delivered to the sector?
• Do funding sources differ depending on the size of organisation?
• How can I support good causes?

How are organistions are funded?

According to NCVO’s 2010 Almanac, the two principal funding sources for the non profit sector are individuals and statutory funding. The cuts in public funding will have a significant impact; this impact will be different in different areas of the sector according to their dependence on this source of income.

2007/8 figures ascribe £13.1billion or 37 per cent of total income to individual giving with statutory giving marginally lower at £12.8billion or 36 per cent. These two sources of income make up 75 per cent of the sector’s total income; both have increased significantly over the last 10 years.

Who is most vulnerable to cuts in statutory funding?

NCVO (2010 Almanac) reports that 70 per cent of income generated by employment and training organisations is derived from statutory sources. More specifically, law and advocacy, education, housing and social services receive around 50 per cent from statutory sources. These are therefore the sub-sectors that are at most risk from austerity measures involving public spending cut backs.

How is income delivered to the sector?

Statutory funding is delivered to the sector in various ways which can be summarised as voluntary income (grants) and earned income (contracts).

Since 2000/01 the amount of earned income produced by non profit organisations has increased by 76 per cent, largely as a result of more non profit sector involvement in service provision. Earned income from statutory sources in the form of contracting increased by 128 per cent over those seven years and now amounts to £9.1billion. At the same time, grants from statutory funders declined £0.4billion to £3.7billion.

In recent years most statutory funding has been routed through local authorities, some 52 per cent or £6.6billion in 2007/8. The next biggest chunk comes from central government and the NHS, (41 per cent) with European and international statutory sources providing just 7 per cent.

Do funding sources differ depending on the size of organisation?

Generally speaking, larger organisations receive more statutory funding; 79 per cent of the sector's statutory income is received by just 3,742 large and major organisations. In contrast, small and micro organisations receive only 3.3 per cent of total statutory funding to the sector.

The main source of income for nearly two thirds of micro organisations and nearly half of small organisations is individual giving. 

See the Individual and small-scale giving section for more information on this. For comprehensive and detailed insights into charitable giving, see Professor Cathy Pharoah’s Market Monitor which provides a regular and reliable source of robustly researched and digested data.

How can individuals engage with and support good causes?

To be effective, non profit organisations need to have reasonably diverse sources of reliable income and to be demonstrably effective in how funds are spent in delivering their mission. Careful and innovative management of both income and spending allows for sustainability and resilience. 

In 2008/9 NCVO reports that 54 per cent of the UK adult population donated in a typical month, some 2 per cent down on the previous year; this is attributed to the effects of the recession on individual spending. Similarly the amount given saw a decline. Donors still gave, but gave less.

The sector is heavily dependant on major donors, 7 per cent of the donor population gave almost half of donations received.  More women (58 per cent) than men (49 per cent) give to charity but men tend to give slightly  larger donations. There is some evidence that giving increases with age. The 65 plus age group has more donors than any other (61 per cent).

There are numerous ways in which individuals can engage with and give to non profits. (see how you can support a charity)

Financial donations are most valuable to a non profit when they are given over time and reliably and through a tax efficient route.

Using donated funds

Funds can be donated for general use by a non profit,  unrestricted funds, or for a particular purpose, restricted and project funds. Non profits must have a healthy mix of these types of funding to be sustainable and effective as there are core costs which must also be funded without which it cannot deliver its mission.

The most beneficial form of giving is regular, committed and tax efficient giving over an extended period. Increasingly, non profits view such donors as crucial stakeholders with whom they want to share the journey of achieving their mission.

Have your say

If you're new to non profits, why not join in one of the discussions and learn from people who are already working in the sector.  Ask questions and share your thoughts on one of KnowHow's discussion forums.