Challenging times for Charities in balancing funding requirements.
Posted: Thursday 24 November 2011
Many people involved in running charities or volunteering for them are now facing some of the hardest choices in making sure that the charity continues and thrives. Donations and other forms of income are dropping and yet the demands on charities to still deliver the services are rising daily – there are estimates of 53% increase in demand against a 50% increase in costs. This was not what most of charity managers signed up for and it can be extremely time consuming and concerning for them as they try to manage through the choppy waters of the current economic climate.
We have seen an increase in charities looking to borrow on the strength of assets held for years - great care needs to be taken with this course of action as it is essential that the trustees are aware of likely income stream and whether it is going to be enough to cover the cost of borrowings. There are a number of specialist lenders in this field who are extremely helpful in assisting trustees in looking at feasibility studies of proposals and also grant availability – we have good connections at Morton Fraser with several of these lenders and would be happy to make introductions if required.
There are some key things that trustees can look to do before they even think of approaching a bank:-
- does the charity have the powers to borrow in the constitution and is all the paper work up to date?
- is your financial information robust and do you truly understand it? You must be able to speak to the information – we have all seen the ghastly moments on Dragons’ Den when people collapse under the strain of the Dragons’ scrutiny of their figures!
- business plan – do you have one and have you crossed this over an accountant for a sense check?
- have you considered innovative ideas for increasing income – again there are several bodies that can assist with ideas and how to form business plans. Examples can be the setting up of a subsidiary trading company that can operate to create income for the charity but ring fence liability.
- key to any business plan is an assessment of risk – a lot of focus has to be put on this to ensure that trustees can demonstrably show not only the bank but also themselves that they are discharging their responsibilities as trustees in that they can show that they have thought of the down sides and have a plan in place to fill in the gaps. Trustees need to be very careful to be able to show that they have fulfilled this function and that may well mean speaking to accountants and lawyers for their advice but there are no short cuts on this one!
Banks are here to help and if you can show them a good plan and that you have thought it all through then you should meet with some interest. The key is to have a business plan that really looks to the long term future and sustainability. If you cannot do this then more drastic action may be required such as a merger with another organisation.
If you would like to explore these matters in more detail, please contact Susan Younger by emailing susan.younger@morton-fraser.com or by calling 0131 247 1204.
