Charities facing financial difficulty
News of local charities entering administration in recent weeks will no doubt be unsettling for the sector. These announcements come at a time when the economic environment is tough for charities. Many organisations have been subject to increasing costs and funding pressure whilst at the same time battling with an ever-growing demand for services. The increase in employers national insurance from April 2025 will further add to these pressures.
Just like trading businesses, charities should carefully monitor their budgets and management accounts as these provide important indicators on the overall financial health of the charity. It is vital that trustees understand and manage the charity’s finances. This will help them comply with their trustee duties, including the duty to manage charity resources responsibility and to act in its best interest.
Many charities will have hired an expert to manage their finances, but this does not remove the responsibility of the trustees. Each trustee is jointly accountable for understanding and managing the charity’s financial position.
The earlier if can be identified that a charity is in financial difficulty, the quicker the trustees can act to protect the beneficiaries.
Insolvency is complex and what it means depends on the charity’s structure. In simple terms, the charity may be insolvent if it either cannot pay its debts when they are due, or it doesn’t have enough assets to cover its liabilities.
If you think your charity may be insolvent then you should seek immediate advice from an insolvency practitioner.
If the charity isn’t insolvent, the below should be considered to help improve the situation
- Prepare regular management accounts and ensure these are discussed at board level. Compare actual costs to budget and scrutinise any overspend.
- Prepare a 13 week rolling cashflow
- Review overheads and consider stopping or pausing any non-essential outgoings
- Consider reducing some of the charity’s services and refer beneficiaries to other similar charities
- Consider teaming up with another charity with similar purposes to share facilities or resources
- Chase all outstanding customer debts
- Review payment terms with suppliers
- Launch a fundraising appeal, ensuring that any funds raised can be used by your charity for its purpose
- Ensure gift aid is being maximised
- Apply for grants
- Speak to your independent examiner or auditor.
If you’re looking for support managing your charity finances, speak with one our charity sector experts.
