merging not closing - the future of charities?

Regular readers of my blog will know that I enjoy analysing a good data set - and trying to turn them into simple charts that usually make everyone who seems them stop in their tracks and start to rethink what they thought they understood and knew.

Well, it's time for another 'pause and wonder' moment, as I turn my spreadsheets' gaze on charity mergers...

In the past I've looked at data on the 'churn rate' of charities (how many are being wound up each year, and also in comparison to the extent to which other legal forms are being wound up) - but recently, I came across the register of every charity merger since the end of 2007!

Now, despite my having been involved in 'refereeing' some mergers between charities in the past, it's always felt to me that there's something of a taboo about charities merging - Trustees don't usually seem that comfortable wanting to talk about it (unless their charity is in immediate threat of going bankrupt), by which point any other charities doesn't want to entertain taking it on as a liability which would drain and distract from their existing resources. Perhaps this is why about 3% of all charities are wound up each year in comparison to the 0.2% who merge. Does the variance in these figures suggest that charities are finding it easier to wind up, rather than be able to successfully merge with another charity?

This hypothesis, coupled with the time that a merger between charities can take (6-12 months if you want to do it properly?), seems to suggest that merging as a means for a charity to continue to see its purposes achieved beyond it's own existence is usually not taken up or enacted, even if it may transpire to be the best choice: Trustees are simply leaving things too late in the hope that something will magically resolve before feeling they can start talks with other charities about a merger option while there's still plenty of time (and reserves) to do things calming and in a less risky way.

But what of this 16-year data set about charity mergers I teased you with at the start?

Well, here's the chart:

And to help you make sense of the squiggles in it 

• the blue line shows the number of charity mergers happening each year. Interestingly, these started to significantly increase in the years BEFORE the Covid pandemic, and have now started to drop, even during the cost of living crisis. This suggests that massive financial shocks to the sector are not having any influence on charities exploring merging.
• the orange line shows the average number of mergers each year over the last 16 years. 
• the dotted line is the next one of interest: it shows the linear trend of charity mergers over the last 16 years - admittedly, it's rising very slowly, but it's rising nonetheless, which suggests that ever so slowly, more charities are starting to pursue the merger option to best safeguard their purposes and support for their communities. For example - in the period 2016-2022, the likelihood a charity would merge increased by roughly 75%, in comparison with the likelihood a charity would be wound up increasing by approximately 10%. 

But is it too little too late?

We're still seeing only 0.2% of all charities completing a merger each year in comparison to the far larger 3% who are wound up.

Perhaps this chart and the notes below it will help more Trustees start to explore the merger option sooner rather than later, and so better protect the people they were originally set up to support?  And if they do, could this see a flipping of the current numbers, so that in the future, more charities merge than are wound up?

death and the entrepreneur

There's a famous adage that goes along the lines of "there are only 2 certainties in life: death and taxes".

And whilst there seems to be a constant flow of articles, conversations, arguments, and such like around tax and business, it seems no-one wants to talk about death and business.

Specifically - what happens to your business when you die.

My reasons for such apparent morbidity in starting to explore this theme are multiple - I was asked to support a Board of Directors work out what to do with the business that they were responsible for after its founder and chief exec unexpectedly passed in their sleep (not that easy when they kept all the passwords and security details for the bank, Companies House, HMRC, etc in their head, and for various reasons it wasn't possible for me to obtain a copy of their death certificate from their grieving spouse...); and I'm also occasionally approached by founders of social enterprises who've recently received terminal diagnoses and are keen to try and ensure that their efforts in this life will have a worthwhile legacy.

And there's a clear business case for trying to get us to talk about death more openly too - research shows that most business continue to struggle for years after their founders death.

Ultimately, I think it comes down to succession - whilst we may be very good at planning for all sorts of risks and contingencies in our enterprises, charities, and others, we rarely (if ever) plan for us not to be a part of it, and think about what sort of future it should (or could) have without us being involved with it.

We seem to have also fetishised entrepreneurs - tech entrepreneurs and hailed and presented as saviours of our economy; health ones will save us from suffering illness of all types; and social ones will fix all the problems in our local communities; with nothing but the magical power of their will and without the need to rely on others to get there. That's a lot of expectation to heap on someone who's just trying to see how far their idea will go... 

As entrepreneurs, we're already more likely to suffer mental ill health (which seems to be repeatedly quietly glossed over); have our relationships with friends and family suffer; and be more likely to be victims of targeted crime.

So if we die unexpectedly, then the venture that we've gambled all of the above on, will likely crumble and be messily wound up. It will leave people upset and angry, and mean that all of the above we suffered was for nothing, as it's likely that there'll be no legacy to what we were trying to build up (because we never thought we could die because we're the ones who are supposed to be saving everything and everyone else).

In those rare instances where entrepreneurs do dally with thoughts about the grim reaper, it's usually a conversation with their accountants who direct them as to the ways in which they can get the most money out of the business they've built to date to enjoy their final months with - or can soften the loss on their immediate family.

It seems to me that as entrepreneurs we don't talk about our own mortality enough in ensuring that the visions which have driven us to risk everything we have to realise them, will have a good chance of continuing to impact the world and change communities for the better, even if we're not around to celebrate that as it happens.

Death is already far too taboo a subject, and as such, creates lots of unnecessary problems for those around us when we leave this life.

So - what's your plan for your enterprise (be it social, charitable, co-operative, private or other) if you were to suddenly not wake up, or receive the news from your Doctor that none of us ever want to hear?