2 Sources of income
Generally, voluntary organisations receive their income from four main sources:
- Donations of various kinds: these can be one-off donations from individuals or they can be small sums raised through appeals, sponsorship or events organised in the community. For example, in many villages and towns, people open their gardens to the public one weekend a year and charge admission, sell cakes and lunches and hold raffles for prizes. There may be sizable donations from charitable trusts for particular projects that fit the trust’s aims. Business organisations may also offer donations or sponsorship. This is usually unrestricted income.
- Grant funding: this may come from local or central government, charitable foundations, companies or from some other statutory bodies. Many voluntary organisations, for example, have received funding from the National Lottery through the Big Lottery Fund or the Heritage Lottery Fund. This is usually restricted income.
- Contracts and tenders: these are usually with a government organisation to provide specific services. This is the area of voluntary sector income that has grown most rapidly, particularly as the UK government has moved from grants to contracts. This is restricted income.
- Trading: this may be from traditional charity shops, which are a feature of many high streets and are usually staffed by volunteers selling second-hand goods. In some cases (such as Oxfam), they sell new goods produced under fair trade standards overseas.
Income is usually a mix of unrestricted and restricted funding. Unrestricted income is money that can be spent at the discretion of trustees. Restricted income is money given for a specific purpose within the wider objectives of the organisation.
Organisations also often have reserves, which they keep invested to use at a later date. Charity reserves are a controversial issue. The media often criticise charities for holding large reserves while still carrying out fundraising appeals. Yet having reasonable reserves probably means that good financial management has been practised. The reserves provide a buffer or safeguard if income falls or if there are other unexpected calls on the organisation’s funds.
However, because of concerns about financial management in charities, the Charity Commission for England and Wales states that voluntary organisations should ‘explain and justify’ the level of reserves they hold. Therefore, all organisations need to develop a policy relating to reserves.
Voluntary organisations often try to obtain their funding from different sources so that they are not over-dependent on one source. This can help to manage the risks associated with the fall of income from a particular source. You will explore more about income in Week 5, in the context of fundraising.