Charity Finance Group chief executive Caron Bradshaw examines the questions raised by the closure of Kids Company.

Charities have been in the spotlight in the wake of the recent closure of some high-profile charities, culminating with the closure of Kids Company last week.

After the news broke, I had a day of back-to-back radio and broadcast interviews answering questions about the financial sustainability of charities.

Two questions popped up repeatedly – ‘are there too many charities?’ and ‘is charity regulation too weak?’

These questions, understandable though they may be, don’t get to the heart of the challenges that charities are facing at the moment.

In my view there is no perfect number of charities, the idea that there are too many, is impossible to answer if there isn’t a ‘right number’.  So this question is a red herring. Take the example of children’s charities. There are 37,000 organisations whose core beneficiaries are children and young people. A lot, you might think. But these are not just national, household-name organisations. They’re also groups responding to local need or serving a niche. Small and similar doesn’t automatically mean duplication and waste. It’s like saying that because there is a corner shop in Darlington there is no need for one in Stockton.

One of the issues touched upon in the interviews was whether more charities should merge. The answer is probably yes, more could merge. However where mergers happen in a crisis, the outcomes for the cause may be compromised. When mergers take place at the right time, when it’s in the best interests of the beneficiaries, this should be encouraged. A culture shift is needed so that mergers are viewed as a positive part of the life cycle of an organisation and not a response to failure.

I was surprised at the interviewer’s perception that charities are relatively unregulated compared to businesses. As we know, the opposite is true. As a sector we need to better communicate that we operate to a comprehensive framework developed with public interest at its heart.

What I wanted to convey is that good financial skills are recognised as being crucial within charities. We must make it clear that charities need to be better supported to develop their financial leadership. These recent developments show that inspired financial leadership, and not compliance, is central to sustainable services of our beneficiaries.

Charities have experienced a significant capacity crunch over the past few years. The capacity-building that has been undertaken is rarely focused on the financial skills that will enable charities to get the most out of their resources. Funds such as the Local Sustainability Fund are welcome, but the short timespan for applying, and the limited funds available, means that it might not reach those who are most in need.

Demands on charities’ services are increasing. If we aim to continue delivering at the level we currently are, we are facing a £4.6bn funding gap by 2018. This comes as a result of both government spending cuts and inflation. Charities support some of the most vulnerable people and communities, but we are facing a future of a major squeeze. In order to continue to provide support where government and businesses cannot, we need a strong, financially secure charity sector.

We shouldn’t need to be answering questions on whether there are too many charities. We should be shining a light on the challenges that charities face in delivering real benefits to society, and putting forward ideas to solve them.

Income from individuals is not growing fast enough to make up for reductions in government funding, and nor can it be expected to if charities do not have the money to invest in identifying and developing new income streams.

Charity Finance Group thinks the pace of government cuts needs to be slowed, to allow charities more time to adapt to the changes and challenges they are facing - or we risk a bigger cost to society in the longer term.