A recent Charity Commission report has identified the impact of financial pressures on the charity sector, finding that charities are experiencing multiple challenges including increased demand for services, the rising cost of employing staff, and the impact of inflation on funding values.
The Commission says that risks to financial resilience are one of the most pressing issues currently facing the charity sector.
Whilst individual charities can do little to influence the wider economic environment, they can put in place measures to ensure they are staying on top of their organisation’s financial sustainability – in particular paying careful attention to accurate forecasting and planning, and responding promptly to ongoing financial challenges.
This is particularly important when tendering or re-tendering to provide services on a contractual basis. The temptation in the charitable sector is often to underbid, focussing on meeting the immediate needs of beneficiaries over the longer-term sustainability of the charity itself.
But it is vital that when undertaking such a tendering process that charities consider all the relevant costs of fulfilling that contract. Agreeing to provide a service at a loss is not sustainable for the long-term, and if it threatens the very financial survival of the charity, that would be disastrous in terms of its ability to meet those needs of beneficiaries into the future.
To do this, a robust budgeting process is absolutely vital, fed by good quality management information and up-to-date financial figures. Building financial resilience requires, as far as possible, certainty about current and future challenges.
If trustees do decide to run a service at a loss, then a clear and strong reserves policy must be in place to ensure that the charity’s finances are not run down to the point where it threatens the organisation’s very survival. The Charity Commission points out that running an operating deficit does not mean a charity is insolvent, but drawing on reserves to bridge the gap between income and expenditure must be sustainable.
At a time of acute financial pressure, charities need to ensure they are taking advantage of all of the reliefs and allowances which they could benefit from, including Employers’ Allowance and tax and VAT reliefs.
The Charity Commission has launched a new awareness campaign this autumn to highlight its financial guidance for charities; trustees and charity managers may find useful tips on the Commission’s website.