The COVID-19 pandemic has impacted on every charity in the UK and beyond, and for most, that impact has been a negative one. Fundraising has dried up, fixed and staff costs remain unchanged, and the whole third sector faces a very uncertain future.
Well-run charities can and have built financial resilience. Reserves help of course, as does good cash flow management – collecting payments quickly when possible and maintaining good relationships with suppliers. Local authorities, major donors and trusts may provide support, but that’s all very competitive even where it is available.
Generally, building financial resilience means:
- Understanding financial risks to the charity and working to reduce/mitigate
- Having plans in place, i.e. robust budgets and cash flow forecasts
- Knowing and measuring the KPIs that matter
- Building reserves when business is good, in anticipation of leaner times
- Building strong and supportive relationships – with donors, contract commissioners, employees, suppliers, and banks
If I’d written this article a few months ago I would have been extolling these as essential, and indeed if a board of trustees have been working on these things in recent years, that charity is far more likely to survive these difficult times. Now though, for most, the rainy day is here; COVID-19 has brought with it an unprecedented decimation of the economy. Hands up any trustee who had “Global Pandemic Killer Virus” as a heading in the charity’s risk register – not too many, I would wager. The truth is that in many cases even those organisations that had built what would normally be a perfectly reasonable degree of financial resilience are struggling, or will be struggling very soon.
So attention must turn to mitigation. Should the charity “draw in the horns”, hunker down and wait? Or is now the time to speculate, diversify and innovate, to tackle new needs for beneficiaries presented by the pandemic or tap into new funding streams set up to help? Should a charity contract to protect its existence and some jobs? Can a charity even be mothballed altogether? Or, perhaps, is it time to recognise that the writing is on the wall, and carefully manage a winding down and closure rather than battling on until the inevitable collapse?
We have to give credit where it’s due. Irrespective of the colour of our individual politics, we should all recognise that the support injected into our economy by the government is mind boggling. Billions of pounds in the furlough and job protection schemes, billions invested into specific sectors, billions granted and lent to the self-employed; and all of this on top of massively increasing benefit bills and NHS costs. All well and good, but we must also recognise that there are limits to the funding and other support that can be provided – even a government can only borrow so much.
Contemplating a managed exit is a hard thing for a charity to do. Charity leaders – especially those trustee-founders and trustees of long standing charities, are massively invested emotionally and personally in their organisations. Recognising that the time has come to manage a graceful exit is tough to do and tough to implement, and added to that is the prospect of charity staff having to find other sources of income in one of the leanest job markets for decades.
When tough decisions are needed, trustees must put the emotional, personal investment in their charity to one side, and work through a logical, rational decision making process, whilst recognising from the start that that process might lead to any of the suggestions above.
In business, there have been some great examples of innovation and growth in responding to the pandemic, from individuals literally getting on their bikes to introduce new services in their communities, to major organisations switching production lines to in-demand products such as PPE, sanitiser, DIY products, hobbycrafts and so on. Also, many businesses have adapted or expanded to our newly invigorated cyber world with online shopping, new virtual services and exciting new apps. There may be parallels available to some charities.
If your charity is one doing well by responding to the pandemic, I wish you every success. If your charity is struggling and your resilience has been or is being eroded, I’d urge you to explore all options. Surviving might take some thinking outside of your usual box, so don’t be afraid to innovate. Surviving might mean taking full advantage of furlough, grants, loans and job schemes available, so don’t be too proud to ask and apply. Surviving might mean contraction, redundancies and shrinkage, so don’t be afraid to take a step backwards if necessary. Finally, survival might not be possible, or the battle might not be something you have the appetite for, in which case don’t be afraid to acknowledge and accept this, because working through a managed exit and closure is much better, in most cases, than a charity collapsing.