A national survey of 72 charities, commissioned by Birmingham-based education charity Services For Education, found that financial sustainability is now the issue attracting the greatest attention from charity leaders.

Respondents rated financial sustainability at 4.58 out of five in terms of leadership attention, ahead of impact and mission delivery at 4.04 and organisational culture at 3.70.

More than half of respondents – 40 out of 72 – identified financial sustainability as the area currently under the greatest pressure.

But the research suggests that the financial pressures facing charities are increasingly being felt through their impact on people and organisational culture.

Funding gaps, contract losses, inflation, increased National Insurance costs, low reserves, salary pressures and changes in local authority and government funding are among the pressures identified by respondents, alongside the need to find new and more diverse sources of income.

For many organisations, the response has included restructuring, changes to pension arrangements, delayed pay decisions, reductions in service delivery, new fundraising approaches and fundamental reviews of their business models.

The report, Leading Through Uncertainty: How Charity Leaders Balance Impact, Financial Sustainability and Culture, argues that the challenge for charity boards and executives is not to choose between financial sustainability, organisational culture and impact, but to maintain a balance between all three.

Sharon Bell, chief executive of Services For Education, initiated the research following discussions with charity leaders at Charity Finance Group and ICAEW Charity Community conferences.

She said: “The financial pressures facing charities are very real, but I wanted to understand what happens when those pressures reach the boardroom and start influencing the decisions that determine an organisation’s future.

“What struck me most from the research is that financial sustainability, impact and culture are not competing priorities. They are interconnected.”

Bell argues that organisational culture in many enterprises can become the “hidden casualty” when financial pressures dominate decision-making.

While the impact of financial decisions may initially appear on balance sheets and financial dashboards, she says their longer-term consequences can include increased workloads, falling morale, reduced staffing, pressure on wellbeing and a reduced capacity to maintain services.

She said: “The danger is that culture can become the hidden casualty of financial pressure.

“It may not appear to be the biggest problem on the dashboard, but if people are exhausted, morale is falling and organisational confidence is being eroded, the consequences will eventually affect impact.”

The research also provides evidence that financial pressure is prompting innovation rather than simply cost-cutting.

Charities reported strengthening governance and financial reporting, improving reserves management, diversifying income, redesigning services, investing in impact measurement, embracing digital transformation and developing new approaches to service delivery.

Strong governance emerged as a particularly important factor, with respondents highlighting effective trustee oversight, diverse board skills, constructive challenge, succession planning and leadership development.