Charities are founded on a simple principle: to create positive, lasting change in their area of expertise. That could be everything from an environmental or religious cause to one centred on education or the financial support of lower-income communities. Whatever their mission, charities set out to live their values and improve the lives of the stakeholders that require their support. Most start small, and as they grow, are able to greatly expand the depth and breadth of their philanthropic work.

But just as registered charities in Canada play a vital role in addressing a range of important social challenges, scaling up—so they can expand their impact and grow their reach—is often a significant challenge. Growth can be limited by organizational issues, administrative and regulatory complexities, along with fundraising struggles. The latter is an ongoing obstacle to success. According to preliminary data from Statistics Canada, nationwide charitable giving has been fluctuating in recent years due to a range of factors, with cost of living pressures being among the most significant.

Statistics Canada reported that in 2023 (its most recent year of available data), the percentage of Canadian tax filers that declared a charitable donation on their tax return declined to 16.8 per cent; the number was as high as 22.4 per cent in 2012.  While total donations increased to $12.8 billion in 2023, that figure (when adjusted for inflation) was about $300 million less than in 2021. Increasingly, charities are relying on the generosity of higher-donating philanthropists as the pool of total donors continues to shrink.

This volatility in donations comes at a time when demand for charitable services is rising in areas such as senior care, mental health services, housing and food security. That creates opportunity for charities to expand their operations, especially for those able to harness process innovation and collaborate with partners to boost their organization’s long-term sustainability. Yet most charities lack the capacity or resources to invest in the tools and infrastructure that support meaningful growth. And setting aside the national decline in charitable donations, there’s only so much funding to go around.

With more than 86,000 registered charities and other qualified donees across the country, according to the Canada Revenue Agency Charities Directorate, Canada’s charity landscape is highly crowded. That’s an overwhelming number of organizations competing for the same pool of donors, volunteers, grants, and media attention. The struggle to gain donations and government funding is even more difficult for smaller or upstart charities that may lack the same brand recognition, authority and visibility as major national organizations, or even smaller, but better-established charities.

With all of that in mind, many charities across Canada still manage to substantially expand their operational footprint. In this blog and its follow-up, we’ll explore some of the most daunting challenges charitable organizations experience when aiming to broaden their impact, while highlighting the opportunities to address these issues and to realize their mission-related goals. By understanding these barriers, charity leaders can work with their advisory teams—from business consultants to an experienced chartered professional accounting firm with expertise in the charity and non-profit field—to achieve success:

An overdependence on government and grant funding—It’s common for some charities to rely heavily on government grants or project-based funding. The challenge is that government funding can be unpredictable and subject to the policy changes of the government of the day. Budget tightening cycles or policy shifts can result in program cutbacks or a complete cutoff of funding. A lack of diversified revenue can hinder long-term planning and investment in growth initiatives.

The opportunity: To broaden and diversify the charity’s funding base. While some dependence on government funding is inevitable in many cases, charitable organizations that focus on building a robust fundraising infrastructure, while minimizing overhead, can establish stable, long-term funding channels that spread risk and help mitigate the impact of sudden financial shocks.

Understanding capacity constraints and knowing when to hire employees—Charities often run headlong into a talent problem as they grow. They simply lack the internal capacity to scale due to volunteer burnout, under staffing and a dearth of leadership personnel, often because the organization’s limited resources are poured back into community support rather than professional development. These are all understandable, even predictable, issues. But they can be avoided with proactive planning, budgetary forecasting and a robust fundraising program to ensure the organization has the funds it needs to manage and sustain growth.

The opportunity: Leadership can work to constantly take the pulse of the organization and assess everything from employee performance to workloads, then compare their analysis against demand for services as they assess the need to hire new staff or volunteers, or nurture leadership talent. Working in close collaboration with their finance team (if they have one) and accounting firm will provide clear insight into balance sheet realities and underscore both the need and capacity to bring on board new talent (whether paid or volunteer).

Seeking and taking professional advice—This is a crucial consideration that often goes overlooked. Many charitable organizations will attempt to address complex reporting, consulting or compliance requirements on their own (often by having a team member who may not have adequate expertise manage their tax returns or handle the books, for example). As such, it’s not uncommon for charities to under-invest in professional services. This can put the organization under significant risk of non-compliance penalties, interest or even legal challenges. In one example, our team was approached for help by a charity that—partly due to a lack of administrative, finance and HR infrastructure—experienced an alleged fraud by its executive director that placed the organization in a serious financial bind. We were able to help them navigate this unfortunate incident, but it could have been avoided.

The opportunity: To proactively engage the assistance of a legal or accounting firm (or other relevant consultants and professionals) with extensive experience in the charity and non-profit sector. This requires adequate funding—and ongoing budgeting to account for these expenses—to ensure the organization is fully compliant and has an eye to growth-related challenges on the horizon. Not sure when to engage? When it comes to seeking professional advice, organizations should seek help when they conduct their formal incorporation or registration as a charity, when they need legal structuring assistance, when they need to file a T3010 Registered Charity Information Return or when they begin their revenue-generating activities—to name only a few of the growth-driven catalysts.

In the second part of this blog, we’ll look at additional growth-related challenges and opportunities for charities—from CRA compliance to the need for technology investments.

Thomas Turnbull, Partner  

For more information on tax planning and compliance for charities and non-profits, contact a member of the RH Partners team today.