The recent closure of a number of charities, including some well-known high profile organisations, has prompted the Charity Commission to investigate the third sector’s financial resilience.

The Commission recently published two reports showing that trustees who actively take early, pragmatic steps to identify and manage financial difficulties are likely to achieve better outcomes for their charities, and for the beneficiaries whose interests they guard.

They identified 94 charities with incomes above £1 million whose auditors had highlighted potential or existing financial difficulties. The total turnover of the sample group was more than £462 million.

The Commission’s review of the charities’ accounts found income reductions and a range of cost factors were the chief cause of financial problems. The review also reported that trustee responses included creating business plans to increase service use and revenue, and increased risks management, with varying rates of success.

As part of their reports, the Commission also undertook detailed monitoring and compliance visits to 10 charities in financial distress, five of which were drawn from the study group. The visits established that the majority of trustees had acted competently, and that those who had intervened early and investigated diverse options to stabilise and improve finances had managed to steer their charities through testing times.

The Charity Commission’s two reports highlight key themes and offer advice that charities in all states of financial health need to heed. The reports conclude that:

• The case studies prove that taking early steps to confront financial problems pragmatically minimises risk to beneficiaries and charities’ operational funding.
• A range of options, including mergers and collaborations, are available to charities to address financial predicaments and achieve positive outcomes to negative situations.
• Trustees must stay alert at all times to the risks of financial distress, especially as the future outlook for charities remains challenging.

At Milsted Langdon, our charities team can carry out a full review your financial position, as well as assisting you to manage, plan and grow your charity by looking at important issues affecting you now, and what might happen in the future. For more information, please contact us.