The Charity Commission have recently released guidance to recognise the difficulties charities are facing resulting from rapidly increasing costs, as well as direction on how to manage ongoing financial pressures.
The guidance is aimed at all Trustees and reminds charities of their duties to provide effective financial stewardship and to confirm that any decisions made are in the best interests of the charity, whilst being legally sound. This includes finding a balance between reducing costs now to preserve funds to support beneficiaries in the future, whilst meeting the needs of the charity’s current beneficiaries. It is recommended in the guidance that open communication with beneficiaries, supporters, staff, and volunteers is paramount to find this balance.
Assessing the risks that arise from making difficult decisions is also vital during periods of financial hardship. Trustees should consider the following:
- Can the charity continue to safeguard beneficiaries, and protect them from harm, as it goes through a potential significant change?
- Is it wise to sell investments and other assets to release funds for current expenditure? Sales may raise less money than could otherwise be secured in better economic conditions, however, it may be the best option available to meet your urgent needs. Whatever you decide to do, it is advisable to record clear reasons to support the decision made. You may also be eligible to borrow against your charity’s assets provided you follow the legal requirements.
A large proportion of the guidance provides advice, considerations and practical steps which can be taken if a charity finds itself in serious financial difficulty. Including:
- Minimising costs – stopping non-essential outgoings, reallocating employees, or even pausing some of the charity’s activities if needed.
- Considering whether any of the charity’s funds can be released – this may involve seeking Charity Commission authority to change how restricted funds can be expended.
- Conserving or improving sources of income – speaking to your funders / regular donors at an early stage is important to make them aware of your situation and plans. You may also consider raising extra funds through an emergency appeal or seek new or increased grants / loans at low or no interest.
- Addressing financial difficulties in trading subsidiaries – where a non-charitable trading subsidiary is at risk of no longer being financially viable, charity trustees will need to consider if their charity can justify temporarily supporting the subsidiary.
- Managing fuel costs – charities should ensure they are utilising Government energy bill relief schemes, and paying the correct rate of VAT on the fuel purchased.
- Considering mergers or collaborative working – financial pressures may mean that charities consider merging or collaborating with one or more other charitable organisations. The Charity Commission have released separate guidance in this area.
- Seeking external financial support and guidance – organisations such as National Council for Voluntary Organisations (NCVO), Institute of Fundraising and Charity Finance Group can provide help and support for charities struggling with the cost-of-living pressures.
Get in touch
If you are concerned about the effect of the cost-of-living crisis on your charity, or would like to discuss your particular situation in more detail, please get in touch with your usual adviser, or email email@example.com.