Charity Toolkit 4 - How To Create A Small Charity Financial Sustainability Plan

A simpler version of the finance sustainability plan toolkit, to be used by small charities. Charity Toolkit 4 of 6.

COVID19 Response Toolbox

The funding gap is huge, and cost cutting can be a race to the bottom, and often is.  Health check any aspect of your charity in 30 mins, with access to the largest resource base in the sector, including its Funding Finder database, with 100+ core funders and 250+ other free funding finders, and 50 funding lists by  Registering Now; everything is free.

COVID19 Toolbox

Toolkit

What it does

Which questionnaire is it in?

Survive & Thrive

How to identify and respond to emerging risks and opportunities.

Strategy

Closing The Gap

How to create a financial sustainability plan (co-produced: Moore Kingston Smith).

Finance & Resources

How to create a financial sustainability plan – lite version

Finance & Resources

Secure More Funding

How to create a fundraising recovery plan.

Income

Save Money

How to save money, without cost cutting.

Finance & Resources

Coping With Crisis

How to manage cash in a crisis.

Finance & Resources

Forecasting Income

How to get it right and stay on target.

Income



Financial Outlook

The sector has experienced a huge loss in income, with many facing increased costs.  Funders are being very flexible and something like £2 billion has been made available, but some of this is repurposed funds and loans, and the funding is not equally available to everyone.  The focus has been on front-line charities, particularly those caring for the vulnerable, older people and food banks.  Applications tend to be simplified , with fast turnarounds, but competition is fierce with funds closing.  The funding available appears to be tapering off.  

Recent reports have suggested a huge funding gap, of up to £10 billion (Iof, Pro Bono Economics - June) and as many as half of charities have indicated they close within 6 months (DSC).  In 2008, charity closures increased four-fold.  This may well be much worse. Some larger charities are already announcing redundancies and we can expect to see to an increasing number of redundancies/closures in the coming months, as we approach late summer.  Not least as staff furlough costs begin to kick-in in August and the scheme closes 31 October.  Some 160k charity staff are on furlough. 

Looking further ahead, there is the potential for a deep recession and there are other risks on the horizon, such as Brexit.   The Surviving & Thriving Toolkit provides a more thorough assessment of the above.

Managing Uncertainty

There has been very significant change and new threats and opportunities are emerging. 

It is important that you assess what the key factors might be for your charity, how likely these are to materialise and the potential impact these might have.  

The Surviving & Thriving Toolkit enables you to do this and the Securing Funding toolkit does the same for fundraising.

Cash Position

The most critical immediate issue is likely to be cash flow. Toolkit F provides ideas on how to manage cash, if the situation is critical.

Current Cash Position - how much cash do you have at the bank, any easily near cash assets that could be converted to cash, such as deposit accounts, availability of an overdraft facility.  In case you might need these.  Identify any action, timescales and costs in doing so.

Additional Cash Availability - talk to your bank about the scope for an overdraft and consider what options there might be to take out a short-term loan, or delay the capital repayments on any existing loans, such as a mortgage.      

Loans - There are a number of COVID19 loans available.  You can find these by searching the CEF COVID19 Funder Database, using ‘Loans’.

Investments - in light of the market falls, don't liquidate any equities unless you absolutely have to. That could be a potentially very expensive, as it would crystallise the loss.

Debt (Invoice) Factoring – I’m not a fan, but it might be an alternative, if you can’t get a  bank overdraft.   When you raise an invoice, a Debt Factoring provider will chase payment on your behalf.  You’ll be given the majority of the invoice value, from the point of raising the invoice.  It can help cash flow, but comes at a price. 

Expenditure

Increased Expenditure - identify and, insofar as possible, estimate any increased costs due to the crisis, such as increased costs through additional demands on services.

Make Savings – The Saving Money toolkit E assesses 20 areas in which it is possible to make savings, without cost cutting.

Delayed Expenditure - identify and, insofar as possible, estimate any, such as ongoing building works, delayed training courses or non-delivery of a service by a contractor, due to the crisis.

Expenditure Not Incurred – cancelled/reduced activities, furloughed staff, reductions in tax.

Discretionary Expenditure -  any scope to delay non-essential expenditure, such as training courses, building work or new equipment purchases.

Major Payments - check if any major payments are due soon, such as rent.   If you have a problem, speak to the company, explain your situation and ask for a delay.  Before you do, think about what they might be able/prepared to accept.     

Payment Of Invoices - check that you are not automatically paying invoices early.  If so, start paying by the deadline.

Income

Losses & Delays - identify these and make an estimate of possible timings and amounts, insofar as possible.  Delayed events, closed retail shops and delays in grant bids being processed, or contract income being paid.

Funders - many funders have agreed to be very flexible around grants, including some making advance payments and repurposing funds. Check what they’ve said on their website and speak to them about what could be done to help you.

Emergency Income - identify possible sources.  The free Charity Excellence COVID19 funder database is the largest anywhere, with 800+ records, and is updated weekly.

Fundraising

·        Improve Fundraising - The CEF Data Store shows that the sector is not doing fundraising well in 3 times more areas than we are doing it well.  The CEF Income questionnaire will enable you to assess your fundraising effectiveness and link you to the resources you need to improve this, including funder lists and free funding finders. 

Create Your Recovery Plan - Growing income and creating new income stream stakes time, but needs to be part of your recovery plan and there may be scope to create some additional near-term income, by launching an appeal or similar.  The Securing More Income toolkit will enable you to create your fundraising recovery plan.

Government Support - there is a range of Government COVID19 financial support and comprehensive charity guidance on the various initiatives on the Charity Tax Group Coronavirus hub.

Invoicing – ensure that any work due for payment has been invoiced.  Check outstanding income invoices (aged debtors) and ensure these are being hastened.

Tax Reliefs

Tax Reliefs – we lose out on £ billions, simply because we don’t claim these and tax reliefs may be claimed up to 4 years retrospectively – a useful cash injection, just when we need it. The largest I ever found was worth £0.25m. 

The reason we don’t is there are a lot of them and it can be quite confusing.  For Gift Aid alone, there are 6 different things you can claim this for and, unclaimed Gift Aid, loses us £600m a year. 

·       Select ‘Tax Reliefs’ within the CEF query system and it’ll  identify those you’re missing out on, with links to the resources you’ll need to claim these. 

Or, the CEF Resource Hub Tax Reliefs page includes a list of these, with links to the guidance you need.

COVID19 tax reliefs – The Charity Tax Group have an excellent COVID19 resource page. Here are some.

·        Business Ratesfor organisations involved in retail, leisure, hospitality and nursery.  For those in England, the Charity Tax Group has published a very helpful guide.

·        Gift Aid Small Donations Scheme – following action by the Charity Tax Group, HMRC has announced that it will accept multiple cash donations of £30 or under that have been saved up during the crisis. 

Statutory Sick Pay (SSP) – if you have staff on SSP, check to see if you’re entitled to reclaim this.

Forecasting

Bring the above together into a cash forecast.

Resist Pressure - from:

·        Finance to create detailed projections, unless you have the skills and capacity to do so, and;

·        Senior management/trustees for certainty, except on any issues where you can be certain.

But, you do need to assess the issues in order to take the best possible action in response. Consider creating something that focusses on the most critical factors and which can be  easily and regularly updated.  For most staffing is almost always by far the biggest cost.   

Make It Workable And Useful - everyone is incredibly hard pressed, the situation highly uncertain and time is tight. Even if you did create a detailed forecast it may take time, might be out of date very soon and, potentially, of limited value anyway. Complicated models, may be very accurate, but not necessarily meaningful.

Best/Likely/Worst Case - it can be helpful to create best/most likely/worst case assessments.  You don’t know what will happen and this can be helpful in better understanding the risk.

Action Plan

Use your forecast to create an action plan.

Days/Weeks/Months of Cash - it can be useful to convert your cash position into how many weeks/months of current cash you have to fund operations. Not to work out when you're going to go bankrupt, but to help with planning timelines for your recovery.

Contingency Plan Options – if these might be needed.  Identify specific actions, estimate the saving and any costs, and the timescale to implement these. 

Things To Be Mindful Of

Insolvency Risks

·        I assume that regulatory authorities will be sympathetic, but, if you do not have a reasonable expectation of being able to pay your bills, as these fall due, you must advise the Board immediately.

·        Warning Indicators - to think about: income streams are uncertain, or may be substantially impacted by coronavirus, limited cash at bank and few assets that can easily be liquidated, heavy dependence on a single income stream that may be at risk, multi-year funding due to end soon, with no replacement funding yet in place, spending restricted income on core costs or unplanned spending of reserves, free reserves well below target, or no free reserves.

·        The Risks - In law, there are potentially serious personal risks to trustees who continue to 'wrongfully trade', whilst insolvent.

·        There have been recent changes to insolvency law, including temporarily suspending wrongful trading provisions. That's very good news, as wrongful trading can have serious personal implications for trustees.  They've more than enough to worry about, as it is.  You can find advice  on options, if you need them, here.

·        On 26 June, the Charity Commission issued new guidance on insolvency, in light of the above changes to the law.

Serious Incident Reporting

·       Also be mindful of the charities obligations in respect of serious incident reporting to the Charity Commission, or OSCR or CCNI, if appropriate.   In June, the Commission issued supplementary guidance, in response to COVID19, with a table of examples.

Access All The Free Resources

The resources on this website are just a few from the huge CEF resource base, including the 8 assessment questionnaires, 7 crisis toolkits, the Funding Finder Database’s 100+ core funders, 250+ other free funder databases, and funder lists, and the 50 funder lists; everything is free. 

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