Avoiding the precipice: Turning around financially stressed charities
The charity sector is under financial pressure and many charities are having to face the unpalatable truth that they cannot continue to operate.
In this Insight piece I will address two questions:
- How to manage a financial crisis and
- How to avoid being in a crisis in the first place.
There is much attention being paid to the “resilience” of organisations particularly in the public sector and by extension, those that are reliant on income from government.
A high level of resilience will protect your charity against future financial issues but will also determine how effectively you can overcome a financial crisis, if or when it hits:
For charities, four main indicators of resilience can be identified:
- Leadership – how effective are your trustees?
- Competence and capability – what is the quality of senior staff?
- Pace – how quickly can you respond to a financial crisis?
- Risk and insurance cover – is risk well understood and does insurance mitigate it?
Other factors that affect resilience will be the organisational culture, the degree of partnership working and flexibility.
The financial reports should provide valuable indicators to a charity’s financial health. Check the following:
- Timely accounts with reliable forecasting linked to activity (contracts, sign ups, likely donors, best, medium and worst case)
- Balance Sheet – truth of value, net current assets, cash and timing of liabilities
- An active reserves policy linked to cash
On the Precipice
In the event of a financial crisis, use it to force action – key actions may include:
- Have a plan for a revised future
- Fundraise with major donors
- Fundraise with the public
- Fundraise with Government
- Cut costs promptly
- Sell surplus assets
- Use traffic light reporting so that everyone is aware of the organisational crisis level
- Prepare for the unthinkable
In the event of closure:
In this worst-case scenario, how should you approach the closure of a charity?
Consider the below:
- If solvent, consider merger or transfer of assets to another charity
- Managed Closure where all creditors can be made and all legal responsibilities met
- Take the Insolvency route if Managed Closure not possible.