Cost of living pressures are continuing to cause financial difficulties for many charities, their service users, donors and employees.
Donors feeling the constraints may lead to reduced income and those charities providing services to people in need are seeing demand for services increase. These factors are a double hit to charities’ finances. Furthermore, staff are seeking higher remuneration to combat the personal financial impact of the cost of living crisis, and the increase in the national minimum wage announced in the Autumn budget is likely to increase most wage bills. Other costs are also rapidly increasing.
The Charity Commission, in recognition of the above, has produced guidance on how to manage financial difficulties. This guidance is aimed at trustees and, in particular, trustees of smaller charities.
Trustee decisions
It is important trustees continue to comply with their duties and any decisions being made are in the best interests of the charity. Trustees must act with prudence to manage a charity’s resources responsibly and accountably. Decisions must strike a balance between reducing costs now to protect future beneficiaries and meeting the immediate needs of present beneficiaries. Decisions must also take into account the risks associated with them.
There may not be an obvious ‘right decision’ so it’s important to document the discussions and reasons for making decisions in the minutes of trustee meetings. The Commission does recognise that despite the best efforts of trustees, things may still go wrong.
Evaluating a charity’s financial position
There is greater need to keep the charity’s finances and operations under regular review. Trustees should have an accurate picture of their charity’s current and planned cash flow which correlates with planned operations. A basic form of cash flow should provide a forward looking view to give sight over whether a charity is at risk of running out of cash and when a shortfall may happen. Trustees can then use this forecast to plan operations and make more informed decisions.
Developing options to support continuing operations
When financial difficulties are experienced, consideration should be given to how to improve a charity’s financial position. Things to consider are:
• Minimising costs
• Exploring if funds can be released
• Conserving or improving sources of income
• Managing fuel costs and maximising available reliefs
• Considering the option of mergers or collaborative working
• Seeking external financial support
The guidance also covers actions which need to be taken if a charity cannot continue to operate and when a serious incident report needs to be reported to the Charity Commission.
More details on the above can be found in the Charity Commission guidance.
For more information and advice, please get in touch with our specialist Charities team.
