Actions to deal with a worsening financial position

Here are some suggestions of actions to be considered to deal with a deteriorating financial position. This list is by no means exhaustive, but will hopefully be thought provoking for trustees of charities and not for profit organisations.

  • Look for alternative sources of funding. Consider launching an emergency appeal. Whatever you do you must not hide the reason for any new fundraising initiatives, but in doing so you may of course find donors more reluctant to help you out.
  • Examine your contractual commitments and see whether there is scope for renegotiation or even termination without penalty. Always remember there is a chance the party with who a contract is held may be happy to renegotiate to support you.
  • Discuss the situation with your bank, particularly where loans are secured against the property of the charity.
  • Try to renegotiate existing borrowing or loan facilities.
  • Can you raise further finance against the charity’s assets to allow continued operation?
  • Seek a temporary financing facility to bridge any short term gap until income starts to come in again. This course of action mustn’t be followed if there is no certainty income will recommence, but this course of action will be appropriate where a settlement from a sizeable legacy is anticipated or a property is being sold.
  • Seek the support of stakeholders or members who may be able to offer help to get through a period of temporary difficulty.
  • Reduce existing or planned expenditure to try and bring the level of outgoings below the level of receipts.
  • Consider discontinuing some of the charity’s activities, especially those of a loss making trading subsidiary.
  • Consider selling assets surplus to requirements or entering into a sale and leaseback of a property owned by the charity – providing it does not impinge on the charity’s objectives or result in the leaseback cost creating an operating deficiency.
  • Look at possible mergers with other charities with similar purposes or negotiate with them to help meet outstanding commitments.
  • Where a charity has permanent endowment it may be possible to seek authority from the Charity Commission to borrow from these funds. This will not be quick or straightforward though.
  • The trustees might be able to use the powers contained in the Charities Act to spend permanent endowment funds. In all cases the charity needs to be clear on its planned use of the money and that repayment will be possible.