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Not For Profit Doesn't Mean Free: The Financial Realities of Not for profit Organisations"

As Space to Talk enters its third year, the organisation is entering a period of transition. We realise that as with many third sector not-for-profit ventures we began with lofty ideals. Our focus leaned towards delivering good to the community, providing services, which is let's face it, why we exist. This can only be possible with secured income and a stable operations, and this is our focus as we enter our third year.

When we launched Space to Talk, we naively believed our work to be an obvious social good, funding sources would surely see this and we will find partners. Pete and I are not naive to business, but from the outside, the 3rd sector seemed to be the antidote to the 'cut throat' world of corporate capitalism , and how wrong we were!

However, it is not a simple subject, there are many contributing factors as to why the 3rd sector seems to operate with some of the worst aspects of corporate capitalism while wearing a cloak of public good motivations.

Central to this dichotomy within the not for profit sector is how it is seen by service users, commissioning groups and funding bodies. The term "third sector" typically refers to the not for profit sector, which generally means organisations and entities that operate for purposes other than making a profit. While the third sector is indeed not driven by profit motives, it is not necessarily "free" in the sense that it operates without costs or financial constraints. Instead, it relies on a combination of funding sources, including donations, grants, and earned income, to sustain its operations and achieve its mission.

Here are a few reasons why the third sector may be perceived as "free" or why people might have misconceptions about it:

  1. Volunteer Labour: Non for profit organisations often rely on volunteers who donate their time and expertise to support the organisation's activities. This voluntary labour can create the perception that the sector operates without labour costs. However, unless volunteers are recruited from only demographics that can afford it, volunteers will incur travel costs, will require training and incur other expenses. To expect all volunteers will subsidise these costs through good will is unrealistic or will assume volunteers are restricted to people from more financially comfortable demographics.

  2. Staff: it is true the majority of the third sector relies heavily on voluntary labour, as discussed above not necessarily free but in simple terms labour who do not get a salary. But, most not for profits are full time operations and require permanent staff to administer the day to day running. To expect these staff to provide full or part time labour for free consistently and long term is unrealistic and could also be argued somewhat exploitative.

  3. Donations: Many not for profits receive donations from individuals, foundations, and corporations. These donations are typically used to fund the organisation's programs and operations. While these funds are essential, they do not make the sector entirely free as organisations must compete for these resources and manage them effectively. In addition the vast majority of grants are restricted to specific projects and rarely cover staff and general overhead costs.

  4. Tax Benefits: Not for profit organisations may receive tax benefits but these are restricted to certain registered charities only. However, this can create the perception that all 3rd sector organisations operate without financial constraints. In any case, these tax benefits are intended to incentivise charitable activities and do not eliminate the need for financial management or remove operating costs.

  5. Mission-Driven Focus: Not for profits are driven by a mission to address social, environmental, or community needs rather than profit. This mission-driven focus can lead some people to believe that the sector operates independently of financial concerns, but in reality, financial sustainability is crucial for fulfilling these missions.

  6. Operating costs: even registered charities are ultimately a limited company and are bound by government regulation like any other company. Public and Employer liabilities exist and must be insured. Volunteers may not be classed as employees but many employer obligations apply. Office costs, rents , utilities, IT, professional services and suppliers may offer lower rates for not for profits but they will not be free!

In conclusion, we hope that over time funding and commissioning bodies alongside service users will begin to recognise that not for profit organisations face many of the same financial challenges as for-profit entities, including the need to cover operating expenses, pay staff, and plan for the future. While they may not seek to generate profits for shareholders, they do rely on a mix of financial resources to achieve their objectives.

We are proud of what we have achieved with Space to Talk over the past two years, we are as committed as ever towards our mission to deliver community mental health support but, we are less naive than we were. We have the bruises and scars of a sector which is not what it seems. But we are also determined to not fall into cynicism and defeatism. Not for profit is a powerful statement to our service users, and this is what we hold on to as important, we don't do this for our own financial gain, we do this work because we fundamentally beleive what we provide, does good for others.

About the author

Keith Bunnett is Co-founder and Director of Space to Talk Training CIC


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