With a cost-of-living crisis to contend with, it’s safe to say that charities have had a tough time of it over the past few years.

However, as we approach the mid-point of 2025, it is clear that economic uncertainty, competitive funding landscapes, and new Government policies have created even greater financial challenges for the voluntary sector.

Charities that wish to survive must plan ahead to mitigate the impact of any financial issues.

Here is a key overview of challenges facing the voluntary sector and how you can manage your finances.

Funding challenges

Charities have relied on donations from the general public as their main source of income for more than 20 years.

However, the cost-of-living crisis and the resulting pressure on household incomes has led to a decline in charitable giving.

According to the Charities Aid Foundation’s (CAF) annual UK Giving Report, the number of people donating has fallen to the lowest levels recorded since CAF began its research in 2016.

The reduction in Government funding alongside increased competition for grants has also impacted the voluntary sector.

Combined, these factors have forced many charities to implement significant cost-cutting measures in order to stay in operation.

Rising employment costs

Despite the Government’s focus on balancing the budget and stimulating growth, charities across the UK are left to shoulder the burden of higher employment costs and expanding compliance requirements.

Charities are not exempt from the recent rise in employer National Insurance Contributions (NICs) – and, crucially, cannot pass theses cost onto the consumer, as private sector companies would.

This means many charities are already facing the burden of rising employment costs, and may be forced to reduce staff numbers, services, or opening times as a result.

Benefit cuts = Higher demand for services

In March, the Government revealed its intention to slash nearly £5 billion of disability-related benefits by 2030 – the largest package of welfare cuts since 2019.

These cuts are likely to severely impact disabled people and those on low incomes hard.

The Government’s own analysis suggests that the cuts will push 250,000 more people – including 50,000 children – into poverty, while disability charity Scope puts this figure even higher, at 700,000.

Benefit cuts and the resulting financial impact on communities are therefore likely to result in a higher demand for services from charities supporting the most vulnerable.

At a time when charities are already struggling to stay afloat and provide their services, rising employment costs and a lack of fresh Government support will make meeting the increased need for their services very difficult.

How to combat financial challenges in the voluntary sector

Make sure your charity has strong governance in place.

Skilled leadership teams and Boards need to be able to work together to understand and manage risk effectively.

Developing a clear strategy for your charity is also vital.

Defined goals with a detailed plan of how to get there will enable you to make better decisions, adapt to change effectively, and ensure your precious funds are spent in ways that will make the most impact.

Additionally, set a realistic budget for your charity and stick to it.

Whilst it can be tempting to pour all your charity’s money into projects that contribute to the cause, you must maintain cash reserves to ensure future survival during rough periods.

You can also utilise cloud accounting software to streamline your finances, produce cash flow forecasts, and help you make data-informed decisions on how to allocate your finances.

Milsted Langdon: Your charity accountants

As charities face significant financial challenges, expert financial advice and guidance has never been more important.

At Milsted Langdon, we have wealth of knowledge and experience in advising charities of all sizes on a wide range of issues.

We can offer advice and support which will help you to mitigate the impact of rising employment costs, prepare for the future with cash flow forecasts, and provide you with financial information you can use to submit funding bids that have the best chance of success.

Amidst rising costs and economic uncertainty, charities need specialist support. Contact us today for expert financial advice and guidance.