How to build a successful charity from scratch – in seven easy steps

Whisper it quietly: running a charity is harder than running a for-profit business. Hiring top talent on modest salaries is harder; lack of money makes it harder to move people out with a golden parachute; mergers stumble over egos when the money motive is absent. As a co-founder of eight charities, I have made more mistakes than I care to remember.

Here are the seven key lessons I have learned about building a charity. They may seem obvious, but as George Orwell noted: “to see what is in front of one’s nose needs a constant struggle”.

1. Put in strong financial controls

Any good charity entrepreneur will want to focus all their time and effort on the mission. Controls and audits are seen as dull bureaucracy. But ignore them at your peril. Charities need very strong controls – such as to ensure that no single individual can make or authorise payments – and you need to make sure these controls are being implemented. Charities are magnets for fraudsters because they are seen to be soft targets, but most fraud happens with the help of an insider. I have had three close escapes on fraud. Fraud is not something that happens to other people: it can happen to anyone.

2. Focus on financial management

A charity cannot change the world if it is bankrupt. Know your cash position and cash forecast, and build reserves against a rainy day. From the very beginning, charities must set out a clear financial model which demonstrates – to funders and beneficiaries – how the organisation can be sustainable long term through contracting or fundraising. This kind of good financial information can help head off a potential crisis early.

3. Avoid chasing the money

Money is tight and getting tighter all the time. Charities are competing harder than ever for a shrinking pot of money. So when a large donation is dangled in front of a charity, the natural instinct is to grab the money and ask questions later. This is dangerous because it means the charity may be making contractual or donor commitments it cannot realistically deliver.

4. Good governance matters

Some charity boards are truly excellent; too many are weak. Many boards simply want a quiet life, together with the social status that comes from being able to talk about being on the board of a charity. Wanting status and a quiet life is the first step on the road to a debacle like Kids Company. Good boards are active: they will have a range of skills to support the executive; they will have good networks to build support for the charity; and they will be ready to ask awkward questions of senior management to ensure good governance. New charities should be specifying all this when inviting applications. Remember also that board membership is not for life: boards need fresh talent and thinking, so term limits are vital.

5. Find a great chief executive

The single most important decision a board will make is the choice of chief executive. The transition from an existing to a new chief executive is fraught with risk. As a result, many boards are unwilling to challenge, let alone fire, the boss. This is especially problematic where the chief executive is also the founder and dominates the charity. The board must be strong enough to challenge and change senior management where needed.

6. Hire the “A team”

Charities usually cannot afford large salaries, but this should not mean settling for second best. If a charity is to achieve its mission, it needs top talent, so be relentless in looking for the best. Settling for “good enough” is normally a very expensive mistake, which no charity can afford. There are many talented executives who seek more than financial rewards: a great mission can attract great people.

7. Be ambitious

It is often easier to raise money for a big target than a small target. A big target implies a big mission which is more likely to engage funders – and if charities want to change the world, they need serious money to do so. A larger charity also finds it easier to attract talent and put in good management systems. Small charities can get caught in a trap where the chief executive has to spend too much time on day-to-day activities like fundraising and fire-fighting, and not enough time thinking strategically about how to deliver the mission.

There is, however, one mistake which outweighs all the others when it comes to starting a charity: not trying. If you have a great idea, then go for it. Success is never guaranteed in life – or in charities. If you have the courage to start up you are guaranteed to be richer in experience, if not necessarily richer financially. And if you follow these seven hard won lessons you can tilt the odds of success in your favour.

Jo Owen is co-founder of Teach First and seven other charities, and author of The Mindset of Success.

Talk to us on Twitter via @Gdnvoluntary and join our community for your free Guardian Voluntary Sector newsletter, with analysis and opinion sent direct to you on the first and third Thursdays of the month.