How can charities and not-for-profit organisations cope with a sudden decrease in income?
Charities and the not-for-profit or third sector are coming under severe pressure as the effects of the Coronavirus are felt across the economy. Many organisations are facing an uncertain future as funding streams are cut and private donations wane due to pressure on household budgets.
This can lead organisations closing altogether, with others entering into mergers with other charitable bodies, not always successfully. The offer of financial support from another organisation is often a welcome one, but care must be taken to ensure that it does not have the effect of simply moving the problem and creating financial problems for the merged entity.
The good news is that there are a range of solutions that all types of organisations can use to turn around their financial situation. We have developed a specialism in helping third sector organisations, advising trustees and management committees on their responsibilities and on their options for turnaround and survival despite financial challenges.
The options will depend on a range of factors, the structure of the organisation and the work that it undertakes. For example a charity may be a company limited by guarantee, a charitable incorporated organisation or a Community Interest Company.
There is real concern that some third sector organisations are not making adequate plans to deal with the changing landscape. Many organisations have seen major funding streams dry up and it isn’t clear how this income will be replaced. Turnarounds are possible but it is important that management teams take expert advice as soon as problems are identified.
The Charity Commission guidance for trustees recommends that they seek professional advice as early as possible to help trustees to work out what action to take. Here at Graywoods we work with charities to develop a robust solution that balances the needs of the end user whilst enabling the trustees to fulfil their obligations.
If your organisation is faced with serious financial problems, the following suggested steps will help you in understanding your charity’s financial position, creating a plan and making decisions:
Review the current financial position. Prepare a cashflow forecast based on the most up-to-date information and using prudent assumptions. This will allow trustees to consider whether the organisation can survive or whether a closure is inevitable.
Minimise costs wherever possible. Conserve funds and take steps to protect income streams where possible. Consider whether the organisation can be put into hibernation whilst the situation becomes clearer, perhaps using the government’s ‘furlough’ scheme to cover some of the cost of wages for staff who are not needed to deliver services in the meantime.
Keep the situation under review and take additional actions where necessary. This could include formulating a turnaround plan or taking steps to close down the organisation in an orderly manner.
Taking professional advice is key to ensuring that trustees have access to high-quality advice when they need it most. Graywoods has the expertise and experience to help organisations to cope with financial problems and can advise on all aspects of financial management for charities and not-for-profit sector organisations. From turnaround plans to orderly closures where no other options are available, Graywoods can help.
Take the first step towards solving your organisation’s financial problems – call Graywoods today on 0114 285 9500. We can help.