Charities are not businesses

Charities are not businesses
by Debra Allcock Tyler, Chief Executive, Directory of Social Change

I do not believe that charities are businesses.  Let me repeat in case the message has got lost. Charities are not businesses.

We may have robust financial management systems, sophisticated strategic planning, audited annual accounts, paid employees and detailed organisational policies.  We may even generate our own income through trading.  But we’re not businesses.

We’re not businesses because the Charities Act does not allow us to be, because the rules on public benefit do not allow us to be; because our charitable objects do not allow us to be.

There is one key fundamental difference. 
The purpose of a business is to make a profit.  Whatever the business is, however it is run, whatever the size of turnover, whether its family owned, publicly traded or any of the other myriad ways of being a business, its purpose is to make money.  Good.  So it should be.
We need businesses to be profitable.  We need them to make money so that they can employ people, pay corporation tax and contribute to the wider fiscal economy.

However, that is not the purpose of charity.  For business, money is the end, the ultimate measure of success.  For charities, money is only ever the means and for around 150,000 charities (those with turnovers under £100k pa), it’s not even that much of a means.  For us, money is a tool to help us serve our beneficiaries or deliver against our cause, and that is all. 

And when we forget that – when we lose sight of what we are trying to do in the struggle to survive or when we believe that success is about the size of our turnover or the amount of reserves we have accumulated, then we have not just lost the point – we’ve lost the plot.

Further, if you still believe, especially in this current climate, that charities should emulate business then please don’t bother reading the rest of this. 
If we haven’t learned that a capitalist business model, whilst clearly conferring some benefits, is nonetheless highly risky, frequently unethical and often not in the best interests of the vulnerable, then good luck.

Having said all that let me be clear.  People who work for charities are not necessarily nicer, better, more caring people than those who work for businesses.  The differences between the two sectors have nothing to do with the people and everything to do with the legal frameworks in which we operate.  It’s the law that keeps charities charitable.

Interestingly, many people make two mistakes when they hear that charities are not businesses.  Firstly they assume that the business way of doing things is the right or best way, and secondly that it means that charities aren’t good at running themselves.

Of course charities need to be run well.  In fact it is even more important that we are than businesses are. 
If businesses don’t operate effectively, the worst thing that happens is they lose money or they go out of business.  If charities aren’t run well and fail – the environment suffers; people die, or have their lives shortened; important causes aren’t pursued.

Of course we need to have appropriate systems and processes that make it easier to manage our money, lead our people and care for our beneficiaries.
We need to keep good records; have effective communication systems, have plans to help us meet our vision and charitable objects; have appropriate governance and monitoring systems.  All with the purpose of meeting our charitable objects.  We need to be constantly looking at how we can improve and do things better.

At DSC we have helped thousands of charities who’ve come to us because they believe they can do better, because they want to learn how to be even more effective.  Therefore you cannot be surprised to hear that we believe that businesses have more to learn from charities than the other way round. 
Stop listening to those people who say that we’re not good, not ‘professional’ (whatever that means) and not effective.  It’s not true for most of us and we know it.  The business model doesn’t even work for businesses, why on earth would we genuinely believe it works for us?