Like many organisations, charities and not for profit businesses have faced tough challenges throughout the financial crisis. Significant numbers have faced insolvency where funding has been cut at short notice and could not be replaced by other sources of income within a limited time frame.
With public sector cuts and pressure on charitable funding, charities in particular have had to work hard to survive and prosper in order to fulfil their social goals. An important aspect of retaining adequate funding and minimising the risk of insolvency is effective financial management.
The Funding Challenge
Sources of charitable funding such as individual and corporate donations, government funds and investment income have all been under pressure at various points over the last few years. It is unsurprising that those charities best placed to weather the depressed economic climate have had diverse sources of funding.
Sound financial management does not end with adequate funding however; operational considerations are just as important for long-term survival.
Strategies for Charities Feeling the Financial Squeeze
Charities should take a business-like approach to managing their financial position; a thorough review of finances and operations can benefit even financially sound charities. This might include:
- Ensuring sound financial management is already in place. It is vital for charities to monitor cash regularly and reassess their break-even point continually. Trustees need to understand the liabilities that exist and ensure controls are in place to prevent restricted funds from being utilised for general costs, putting funding at risk.
- A dynamic strategic approach. Charities should seek new sources of finance, increase fundraising activities and incentivise donations with fresh ideas.
- Considering a merger with another charity or charities. Besides a full merger, charities may transfer certain operations to spread risk and provide an uninterrupted service to the charity’s beneficiaries.
- Staying focused. Charities need to understand their core services, plan well and evaluate all of the risks. This can include avoiding entering into sectors where they have little experience.
Seek Help from Experienced Professionals
In the face of difficult economic conditions, trustees need a firm handle on the charity’s financial information to make decisions quickly, otherwise opportunities will be missed and costs may increase.
It is also important that trustees seek professional advice before undertaking strategy reviews, financial health checks, cost reviews, risk management and compliance checks, VAT and tax planning or are anticipating mergers.
Hillier Hopkins Can Help
Hillier Hopkins has specialist teams that can assist with the financial management of all aspects of charitable and not for profit organisations.
This includes day-to-day management issues such as budgeting, management information, payroll processing and advice on risk management and governance. For charities with trading income, we can ensure this is tax efficient, protect it from erosion by tax or VAT, and help you get the most out of your fundraising efforts. Our team can provide gift aid reclaim and separate grant claims assistance to maximise fundraising income.
If you are contemplating a merger, our due diligence process will assess the suitability of potential partners, and you can rely on our expertise and experience in ensuring the financial structure of the charity is optimised through the transition.
For more information contact our charity expert, Neil Cundale.