How to start a charity

Setting up a charity is no easy task, but with the potential to change people’s lives – could it be the right opportunity for you?

Key steps to setting up a charity are:

 

What is a charity and who is it suited to?

Many who start a business do so, ultimately, for themselves – they wish to gain financial independence, be their own boss or work in a sector that interests them. Those setting up a charity, however, have the interests of others at heart; defined by regulatory body the Charity Commission as an organisation set up to benefit a charitable purpose, a charity’s goals have to be completely altruistic. With more than 160,000 registered charities in England and Wales and untold numbers of smaller funds, starting a charity is an increasingly popular option for those who wish to change the world for the better and are willing to put their own financial interests on the backburner.

Most people who set up charities do so in response to an event or issue that is personal to them, such as the bereavement of a relative or a beneficial community project that needs backing. If your charitable goal is more generic and wide-ranging, such as curing cancer or ending world hunger, your money will almost certainly be better spent just donating to one of the UK’s many established charities; with so many around, it is an extremely competitive sector, and any attempt to enter the fray with a new general-purpose fund is almost certainly doomed to fail. Another alternative to starting afresh is to join an existing charity as a trustee; there are many resources to find such opportunities, such as the Trustee Bank, Trustee Net and Trustee Works.

It is also important to note that a registered charity cannot conduct a mix of charitable and non-charitable work, so if your goal is to start a revenue-generating business that donates a portion of profits to charity or has the side-effect of helping the public, you should look into starting a Community Interest Company or other social enterprise instead. “There are a range of options open to anyone who wants to start a ‘third sector’ organisation, and personally I think you should explore these rather than going straight to a charity structure,” advises Pat Broster, deputy chief executive of community interest company Life Story Network and former chief executive of a national environmental charity. “As an example, Community Interest Companies provide more flexibility to trade, directors have more control and there’s no need for a Board of Trustees – make sure you explore these less onerous alternatives before committing to starting a charity.”

Setting up a charity is not easy, and will require patience, an iron will, and real commitment to your cause. “I know lots of entrepreneurial people that have set up their own charities over the years, but the ones who have been successful displayed a very particular kind of determination,” says Honor Wilson-Fletcher, founding director and chief executive of educational charity the Aldridge Foundation. “If you’re starting a charity that’s planning to rely on government grants, for example, you’re likely to have financial security for a maximum of 12 months at a time – you have to accept that it’s going to be really tough.”

But despite the challenges you will face, there is nothing quite like running a charity, and seeing the impact you make can be an experience that no amount of turnover or profit can ever replace. “My job [at the Aldridge Foundation] is infinitely more complicated than anything I’ve ever done before – but about 42 times more fulfilling,” says Wilson-Fletcher. “The motivation you get from working with people whose life chances you are helping to transform is a thrill – it’s absolutely amazing.”


Useful links:
It may be worth considering seeing if you can get a Start Up Loan (external partner site, link opens in a new tab) to help you with financing, and mentoring to start this business idea.

You'll also need to think about registering your business, either as a sole trader or as a company - if a company, then Smarta Formations (external partner site, link opens in a new tab) are an organisation that can help you set up.


Creating a charity business plan

Decide on your goals

If you’re researching how to start a charity, it is likely you already have a general idea of what or who you want to help – if you don’t, it may be time to rethink. “Virtually all charities start through necessity – someone isn’t meeting a need and so you create an organisation to address this,” explains Wilson-Fletcher. “If you’ve simply sat down and exclaimed ‘by gum! I should set up a charity!’ I would recommend starting a social enterprise instead and working on some charitable goals when you have a clearer idea of what it is you wish to do.”

When setting your prospective charity’s goals and thinking about your charity business plan, you should consider how your organisation can make the biggest impact it can, so sit down with your prospective beneficiaries, talk to them, and understand how best they could practically benefit from your efforts. “You wanting to do something good is not as important as understanding what the real need of the end user is,” summarises Wilson-Fletcher. “You have to understand the wider context and be very politically astute. When you understand what the need actually is, you can target your money, you can target your fundraising, and you can target the impact of your work as an organisation.”

Equally as important is working out where your funding will come from. As a charity, you will rely on the goodwill of others to stay afloat, so you need to work out at this stage who or what you will target to receive this. There are many different options available to a charity when fundraising, including grants from the government and other organisations such as the National Lottery, wills and legacies, and direct fundraising from members of the public. Research your options and talk to other charities in your sector to find out the most appropriate funding source for your organisation.

Research the market

When you have formulated your goals, the next step is to assess the landscape to see which other charities there are in your potential sphere. Unlike setting up a private business, this stage should not be about seeing how you can undercut your competitors, but should be to assess whether setting up a charity would genuinely further the cause or simply divert funds away from an existing organisation.

To find out what charities are operating in your area or for your cause, the Charity Commission website has an advanced search tool in which you can search by area, sector and goal – and for more information on a particular charity, independent charity director Guidestar UK has more in-depth profiles on many organisations. Don’t be disheartened if you find another charity has already stolen your thunder; many are continually on the lookout for trustees, so if you feel you can add something to an organisation, get in touch with them.

Get some experience

Starting a charity is very different to starting any other venture – your goals will be very different, and it is a sector that many people have no inside experience of. Taking the time to pick up some tips from insiders before you take the plunge is therefore recommended. “If I was only allowed to give a single piece of advice, it would be to go and spend time with someone that’s already running a charity,” says Honor Wilson-Fletcher. “Everything I’ve learnt about charitable practice, I’ve learnt whilst doing it on the job, and there are so many different ways you can mess it up in the early stages.

“It’s not that it is difficult, there’s just a lot of stuff to think about, so take the time to spend time with someone to learn how you can manage the obstacles.”

Charity rules and regulations

Registering a charity

If your charity generates more than £5,000 in revenue, there’s no way around it – by law, you must register as a charity with the Charity Commission, which insists upon charities fulfilling a rigorous set of standards. Most people who start charities have raised or plan to raise an amount comfortably in excess of the threshold, so you will have to start preparing well in advance of the registration process. Before registering a charity, the Commission requires you to have decided on a name and charity structure, adopted a governing document and appointed trustees: the various steps are explained below.

Decide on a charity structure

There are four main types of charity structure, each with their own pros and cons: this is just a broad overview.

  1. Unincorporated associations – The simplest kind of charity to set up, this is a good option if you expect to stay small. You and the other trustees will be personally liable for anything the charity does and the charity does not have a separate legal status.
  2. Trusts – Set up a trust if you already have a specific sum of money you wish to give to a charitable cause. You and any other trustees will typically meet periodically to decide how the money should be best spent. Again, a trust has no separate legal status.
  3. Charitable companies – Like a private company, a charitable company has the same legal status as a person and can enter into contracts, own land and employ staff in its own right. This is a good option if you want to set up a large, complex charity with employees, overheads and assets, but be aware that it is a more expensive option with additional hurdles to jump through – you will also need to register with Companies House.
  4. Charitable incorporated organisations (CIOs) – This is a new kind of legal structure for a charity that came into force in 2012. CIOs are an incorporated version of a charity that carries some of the benefits of being a limited company with less of the burden; CIOs only register with the Commission.

Draft a governing document

Before registering a charity, your charity must have a governing document – akin to an official ‘business plan’ that publicly describes how your charity will be run and sets the rules for you and your trustees. Each different charity structure typically has its own kind of governing document: an unincorporated association will have a constitution, a trust will have a deed or will, a charitable company has a memorandum or articles of association, and CIOs will normally have either an association constitution or foundation constitution. The Charity Commission website has templates for each charity structure to speed up the process and a full list of elements you must include if you’re drafting from scratch.

Although you will already have a clear idea of your goals, you must ensure that this is clearly framed in your governing document within one of the Charity Commission’s recognised charitable aims, such as the advancement of religion or conservation of the environment. Fall outside the scope of these limited aims, and you cannot register as a charity. “The confusion often comes when your idea involves potentially benefiting others who are not charitable, such as businesses,” explains Sue Lester, who set up charity directory BCConnections with husband and Startups.co.uk founder David in the 1990s. “The Charity Commission argued that we were potentially benefiting private businesses by getting them to partner with charities – we eventually had to use a solicitor to argue our case with the Commission, which was not cheap.”

Fortunately, the Commission has since recognised the difficulty many charities face in framing their mission statement in acceptable language and has created a list of sample mission statements you can use when outlining your goals in your governing document. The Commission advises the eventual registration process will be sped up if you simply reproduce the most appropriate mission statement; it is therefore recommended you pick the sample wording that best reflects your goal, rather than risking a protracted process by drafting your own.

Name your charity

Generally, the same rules apply when naming a charity as naming a business in general – it should be memorable, give some indication of what you’re aiming to achieve (not ‘The Village Hall Trust’, for example), not be intentionally misleading and should be sufficiently unique to distinguish yourself from any other existing or former charity. Use the search tool found on this page to check whether your prospective name is already taken.

Recruit trustees

By law, your charity must have appointed at least one trustee before registering. Trustees are people who sit on the charity’s board and make sure it is fulfilling its aims – they are not normally paid, except with the Commission’s approval in certain situations. Just because trustees are compulsory doesn’t mean they should be a burden; if you choose well you can add immense value to your young charity and make them work for you.

The Charity Commission recommends you appoint at least three trustees, so you should look to build a team that has the skills that you lack – if you’re no good at pitching, for example, try and find a trustee with sales experience who you could use to hustle for funding. “There should be consideration as to what your organisation needs – is it legal, marketing, finance, or business development experience?” advises Pat Broster. “Trustees are the ambassadors for the charity so they should be well connected within the sector you’re in; they should be externally promoting your organisation and bringing clients and partners in.”

Many people who are thinking about how to start a charity find that personal connections within friends and family are the best way of recruiting trusted board members. If you are looking further afield, try advertising in the local press or through organisations such as the National Council for Voluntary Organisations’ Trustee Bank (you will need to be an NCVO member to advertise a vacancy), the small charity-focused Trusteenet website or Trustee Works, which has a trustee-matching service that is free to organisations generating under £1m.

When advertising a vacancy, ensure you list the needed skills and give a transparent overview of your organisation – and when recruiting, be wary that potential trustees may want to be on board for the wrong reasons. “As a note of caution, there can be potential trustees that are simply looking to enhance their CV by holding a board position in a charitable organisation,” warns Pat Broster. “Often, these people are not committed to providing real support and can end up being a burden on your charity.”

The registration process

After you have appointed trustees, drafted a governing document, named your charity and broken the £5,000 turnover threshold, you must register using the application form on the Charity Commission website.

If you have used a model governing document with template charitable objects and have adopted a standard charity structure, the Charity Commission advises that the registration process could take a matter of days – if your structure is more unusual, it can take weeks or longer. Gemma Daly, who co-founded charitable trust Always Look On The Bright Side of Life in 2011, recalls: “It took us about one month total to register with the Charity Commission – and they were very helpful actually, giving us advice on how to change our charitable objectives to make our work easier and more flexible.”

Costs of setting up a charity

How much does it cost to set-up a charity?

The Charity Commission does not charge a fee for registering a charity, but if you are starting an incorporated charity, Companies House charges a small fee – typically £13 for new companies. Aside from this, start-up costs can be virtually zero; you can do without overheads such as premises and staff in the early stages, although many charities seek legal advice when starting up to help navigate the hurdles of the registration process. “We spent £300 on a solicitor to prepare our governing document, but our only other costs were stationary and postage,” recalls Gemma Daly. “Our charity is absolutely focused on having nominal expenses so we really can provide grants to beneficiaries using as much of our funds as possible.”

Charity earnings

How much can I earn when running a charity?

This is entirely up to your trustees (see the ‘charity rules and regulations’ section above). As the people responsible for looking after your charity’s funds, trustees decide whether payments to charity staff – including you – are in the interests of your organisation’s aims; they are allowed to approve salaries and other overheads, but only in so far as this furthers the charity’s ultimate goal.

Your trustees are likely to allow you basic remuneration for running your charity, if you have no alternate source of income, but don’t expect to make any more money than is necessary for you to support yourself; comparable private sector salaries are normally much higher. How much you earn is also directly tied in with your sources of funding, so if the money dries up, expect to find yourself in an uncomfortable situation. “It can be very much hand-to-mouth – and not just in the early stages,” says Honor Wilson-Fletcher. “I certainly wouldn’t depend on a charity as your only source of income. It helps to have a back-up option.”

Tips and useful contacts

The Charity Commission – this should be your go-to resource as a charity. The site contains step-by-step guides on starting a charity, adopting a governing document, registration, and the experience of being a small charity.

National Council for Voluntary Organisations – the UK’s leading volunteer resource site. Find potential trustees here, or become a trustee yourself.

Trusteenet – A resource site to find trustees, targeted at small charities.

Trustee Works – Claims to be the leading trustee-matching service in the UK, having placed 750 trustees in organisations since 2009. Its service is free to charities with revenues under £1m.

Guidestar UK – an independent charity directory where organisations can upload in-depth profiles detailing their structure and goals.