Funding pressures in social care are taking charities into territory littered with pitfalls and challenges alike. Not only are they are under pressure from council funding cuts, they face rising wage costs and growing demand for services.

As a result of financial pressures, charities of all sizes may be: at risk of breaching minimum wage requirements or failing to meet Care Inspectorate standards or levels of service specified in longstanding contracts; having to cancel care provision contracts because they are unviable financially; being forced by contract terms to continue providing financially unsustainable services; vulnerable to reputational threats associated with any of these issues.

These are vital matters with which all trustees and senior managers of charities involved in this sphere must grapple. As well as looking at short-term issues such as current contracts and Service Level Agreements with councils and NHS trusts, they need to consider longer-term solutions, such as new business models.

The immediate issue for many charities is how to fulfil or whether to renew current contracts. One recent survey in England showed six in ten councils had providers hand back contracts in 2016. Given the spate of providers pulling out of contracts, south and north of the Border, and the fact councils are obliged to provide care services, charities’ bargaining positions may be improving when it comes to setting contract terms. They should not jeopardise their sustainability by accepting service levels or fees that are unfeasible to deliver. In such an environment, it is essential for charities to clue up on contract obligations and options.

However, such measures are really only patching a hole when the whole current system of social care in Scotland is “unsustainable”, according to the Accounts Commission. Longer-term, all those involved in the care sector must find new ways to operate. Solutions will take many forms, including delivery of services in the community and use of digital technology. The Third Sector is not responsible for coming up with all the solutions itself: commissioners and funders of care services must drive change. Charities should consider new business models, looking at different structures and partnerships. Organisations once viewed as competitors for funding or contracts should be considered potential collaborators.

Evidence to a recent House of Lords report suggested charities are not as good at collaboration as they ought to be. But faced with questions around financial sustainability, the sector should review approaches to joint working. If a charity sees another organisation can deliver a more sustainable business model in social care, it should be prepared to learn from it, partner with it, or even hand over to it.

Partnerships and mergers may involve management issues around control, loss of identity, core objectives, culture and the interests of beneficiaries. Other obstacles can include legal and technical issues such as legacies, pension liabilities, lease liabilities and redundancies. However, there are many ways to structure partnerships and mergers, allowing issues to be resolved and pitfalls avoided.

Firstly, trustee training and development is needed. The Lords report found poor financial knowledge and management is often a barrier to change. Secondly, charities should undertake regular strategic reviews to establish whether joint working, mergers or even dissolution would better support their beneficiaries and service users.

Thirdly, many mergers or partnerships are scuppered because trustees or executives see them as a rescue remedy only – something to be avoided unless a crisis or funding hole requires it. Instead, new partnerships should be strategically driven, undertaken at a pace that allows due diligence and consultation of staff, trustees, volunteers and beneficiaries.

These are big issues, requiring new thinking from charities in the care sector. For those that do this, there’s a huge opportunity to develop a more sustainable system of social care, to help make society stronger.