The Charity Commission's publication on surviving the recession focuses on strategy, financial health, governance and making the best use of resources.
The Charity Commission has issued its Big Board Talk in response to the economic downturn. This report is a useful checklist of what trustees and senior management should be discussing in order to equip their charities for survival in the current recession.
A lot of the suggestions seem like common sense, and some of you may feel that you have already dealt with all of the questions raised. But how many of us never have time to get round to housekeeping and strategic planning? All too often we find ourselves firefighting when things go wrong; just the day-to-day running of the charity takes up so much time that planning for the future health of the organisation takes a back seat.
The commission urges all trustees to sit down and talk about the impact of the downturn on four main areas:
- strategy
- financial health
- governance
- making the best use of resources.
1. Strategy
The recession brings both opportunities and risks. All trustees need to ensure that the impact of the recession is understood and that their charity is in the best possible position it could be to deal with the downturn.
The risks are obvious and some will need to be tackled urgently. How certain is your future funding? Are you reliant on an income stream that is reducing or disappearing altogether? Is income from your investments reducing, and if so, will this cause problems? Are there other ways that income can be maximised, for example by letting unused space in your property? Does increasing unemployment and poverty increase the demand for your services and can you cope with this increase?
There are opportunities as well. For instance, there is a growing pool of potential volunteers as unemployment and part-time working increases. Some of these people could have the skills you need. The downturn provides an opportunity to re-focus operations and ensure they still match your charity's objects. If there has been some object drift, what do you want to do about it?
2. Financial Health
Charities and companies have, on the whole, benefited from a strong UK economy in recent years. In some cases, – perhaps more so in the corporate world – this has led to complacency. Expenditure hasn't been as tightly controlled as it should have and continuity of income has been taken for granted.
Most organisations are now looking at expenditure to see where cost savings can be made. This might be through staff costs with a redundancy programme, or something less severe like reviewing your internet service provider, your professional advisers and your banking arrangements. Accommodation costs are falling in line with the downturn in the property market so this might be the right time to move to cheaper premises or negotiate a lease with your landlord. If your charity has been considering a purchase of property, and if you are in a financial position to do so, now may be a good time to buy.
Are you aware of all your organisation's contractual obligations? Can you continue to meet these obligations, or do you need to review and renegotiate?
This might be the time to use some of the charity's reserves. All charities should have a reserves policy and most choose to have free reserves equal to, say, six months' or one year's expenditure, so that if income was to reduce the charity could continue to operate. If you do not have a reserves policy, now is the time to develop and put in place a policy that works for you. If there is already a policy in place, trustees should consider whether to use these reserves now, either for operational spending or to implement a restructuring plan to secure the charity's future.
3. Governance
Trustees have ultimate responsibility for directing the affairs of their charity. This requires them to ensure that it is solvent and well-run, and delivers its charitable objects for the benefit of the public. Working through the commission's Big Board Talk checklist will demonstrate that trustees are taking appropriate action in the current economic climate.
The trustee body has a great responsibility and it is clearly useful to have a broad mix of skills on board. Consider whether your current trustee body has the right knowledge and experience to guide the charity through the economic downturn.
Trustees should evaluate whether the charity has adequate controls in place to prevent and detect fraud within the organisation. In a recession there is increased incentive for staff and volunteers to commit fraud and this should be considered, however trustworthy you believe your employees to be.
4. Make The Best Use Of Resources
The report recommends that the Gift Aid rules are reviewed to ensure that you maximise your claims. The rules are on HM Revenue & Customs' (HMRC) website: www.hmrc.gov.uk/charities/gift_aid/
If you pay corporation tax as a charity, restructuring your operations could help to reduce your tax liability. Seek professional advice if you think this applies to you.
All charities could consider whether collaboration, joint working or a merger is in their best interests. For some of you this might not be practical, but if your aims are similar to another local charity, it is sensible to at least have open lines of communication.
A merger sometimes forms a new charity to take on the work of the two old charities, and sometimes one charity takes control of the other party. Professional advice should be sought, and, possibly, guidance from the commission will also be needed.
Collaborative working allows both charities to remain separate organisations while enjoying cost savings as a result of a joint project or venture. This could relate to any aspect of the charities' operational activity including administration, service delivery, fundraising activity, advertising or profile enhancement.
This is a brief summary of some of the questions that charities should consider in the current economic climate.
Further guidance is available on the Charity Commission's website, or contact us for professional advice and support on the logistics and/or implementation of any of these suggestions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
