Charity insights: focusing on financial resilience

Use of a ‘what if?’ approach to financial planning came to the fore during Covid 19. With fresh challenges ahead it may be prudent for many charities to stick with this way of thinking and always have a plan B ready to go.

Richard Blakey at Mencap says the charity has introduced stress-testing into its financial planning that is focused on “what it would take to break our business”.

Mencap has identified key triggers that would suggest the organisation is heading for that breaking point and monitors these on a regular basis. “That gives us an early warning sign,” says Richard, “and if any of those trigger points are hit that's when we formally know we have to take action to do something about it.”

It’s important to regularly and clearly communicate to all stakeholders the challenge your organisation is trying to address, how you’re going about it and the progress you’re making.

The way you communicate will likely need to change depending on the audience – but the core message should be consistent and transparent.

Stakeholders don’t want surprises, like last-minute changes to plans, so regularly report on progress – not only the charity’s position in the here and now but also what you think that might mean for longer-term targets – perhaps one, two or three years ahead.

Funding issues have persuaded many charities they need to adopt a much more commercial outlook when it comes to the financial viability of the services they provide.

Charities face difficult decisions, but Richard Blakey at Mencap says: “You’re doing people a disservice in the long term by providing a service if you can’t deliver the quality you want with the funding you have.”

A more commercial attitude should also extend to procuring services and negotiating contracts with third-party suppliers, particularly for technology and recruitment services.

Charities should also optimise any non-core assets they have – for example, disposing of unused properties or reducing the space they occupy to rent out to other users.

Making difficult decisions about where to spend limited funding is more straightforward if charities stay focused on the priorities that support their core purpose.

Richard Nixon, FareShare’s Director of Finance and Resources, urges charities not to be distracted by a myriad of different initiatives or “pet projects”. If it's not aligned to your core purpose, he adds, there has to be a question mark about the project.

He even suggests that a charity might be advised to turn down an offer of restrictive funding if it doesn't help it pursue its own strategy: “It might be aimed at something very interesting but it’s not the right decision if it’s going to start polluting your core direction.”