Weathering the Storm

In an article recently featured in Charities Management Magazine, Gavin Williams, Senior Manager of Vantis Plc's Charity & Not for Profit Group, provides some guidance for charities on how to survive the economic downturn.

Earlier this year, on 17 March 2009, research consultancy Carol Goldstone Associates, questioned 1,003 charities in England and Wales and found that more than half have been hit by the recession, up from 38% last year.

As a consequence of the recession, the National Society for the Prevention of Cruelty to Children (NSPCC) launched an emergency appeal and shut 12 of its 174 centres to cut costs. Direct debit payments are down, but domestic violence continues to rise. NSPCC is not alone, as the survey showed that 2% of charities had also cut staff numbers.

The crucial factor in cutting costs is to understand the charity's core activities and differentiate between functions that are mission critical. Sometimes these functions are inextricably linked. In many cases reducing costs may be detrimental, especially for those charities that are experiencing greater demand for their services.

Cost cutting is not the only option

Here, Gavin Williams provides advice to charities on how to survive the recession:

More efficient cash flow management

Ensure debtors (e.g. funders) pay promptly and do not pay creditors prematurely. Be careful though not to break payment terms. This will have the equivalent effect of additional funding, providing this policy is applied consistently.

Ensure budgets are accurate and up to date
Constantly monitor actuals against budgets, ensuring forecasts are realistic. Review assumptions whenever new information becomes available, ensuring they are reasonable. Be cautious that if you base a decision on inaccurate information, such as staff redundancies, you may expose your charity to additional legal issues. Accurate information is critical - be careful with data that may inaccurately show a particular function or area to be "unprofitable".

Redundancies are not the only way to cut staff costs

Part time working, such as moving from a five to a four day week, is often a popular option over redundancies. Redundancies will often reduce morale and may have an unforeseen detrimental impact on the future of the charity.

Maximise incoming resources

11% of charities responding to the survey said they were increasing their fund-raising activities. Additionally, ensure controls and procedures surrounding income collection are operating effectively, such as prompt detection and reclamation of gift aid.

Review reserves

6% of those that responded said they were drawing on reserves. Many charities with insufficient unrestricted funds, yet plenty of restricted funds, may be advised to seek permission from their funders to change the restricted purpose of these funds. Many funders might prefer this option, as opposed to seeing the charity fold.

Consider collaborations and mergers

Surprisingly, only 3% of charities said they had considered forming collaborations with other charities, with a similar proportion to mergers. These options can yield significant benefits, including not only reduced costs and greater financial stability, but more effective delivery of services, greater influence and fundraising capabilities.

A new £40m support fund from Government
The Government has earmarked a £40m recession support fund for charities. The plan will include a £15.5m community resilience fund to provide grant funding to community organisations, and a £16.5m modernisation fund to help charities improve efficiency. Charities that are experiencing a greater demand for their services, yet have dwindling reserves, are most likely to benefit.

In summary, Suzi Leather, Chair of the Charity Commission, said "It is clear that the impact of the financial downturn on charities is widening and deepening". The impact is likely to get worse before it gets better and many charities will need to take action. There are, however, a number of options available and charities should seek advice from their usual advisers as necessary.

Gavin Williams
Senior Manager
Vantis Plc
www.vantisplc.com

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