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Sadly, things are hard now, and we see even harder times ahead. So, there is an unfortunate truth to be faced when the economy is tough. Even for a charity, when the bills are not being paid and the money isn’t coming in, you need to accept the situation and take advice.
That is why we offer a specialist support service for charities and other third sector organisations who are facing insolvency.
Dealing with financial issues is never easy, but for a charity, social club, CIC or similar organisation it is even more difficult. There are specific rules to be followed, legal compliance to consider and, to make matters worse, the people involved are often emotionally invested. We are here to offer sympathetic, understanding, advice. Yes, we need to be practical and yes, of course, we need to bring all our professionalism and years of experience to the table, but we also recognise that there are people at the core of all the legalese and formal processes.
There is more to financial difficulties than just the numbers, so we will do all we can to help you through with empathy and understanding.
Technically speaking, insolvency occurs when an organisation is unable to pay its debts as they fall due or when its liabilities exceed its assets. For a private business, for example, if one of these two situations occurs, insolvency is the usual outcome because the company cannot continue to trade. What we sometimes don’t appreciate is that it is also a growing concern for third-sector organisations. That includes charities, social enterprises, voluntary groups, and not-for-profits such as CICs. They can also face financial distress and possible insolvency.
Unlike a traditional business, third-sector organisations often totally or partially rely on donations, grants, and other funding to sustain their activities. When financial pressures mount in the general economy, these sources of income also come under pressure and are reduced or fail entirely.
The bottom line is that the same description of insolvency applies to a charity as it does most other organisations. Sadly then, in a tough economy where charitable giving, grants, donations and other forms of funding are affected, it is sometimes the case that closure, and insolvency are unavoidable.
Some signs your charitable organisation may be in severe financial distress
Every group and society are different, which is why it’s important to talk to us about your specific circumstances so we can help. That said, there are some very common signs that you are in financial distress.
If one or more of these are starting to be, or already are, a regular issue for your organisation, then you should probably think about taking some advice. It isn’t an admission of failure nor does it mean an immediate collapse into insolvency. Your first consultation is free, and it is there to look at your options so we can decide the best route for you, your trustees and your members.
Click here to go to our specialist support pages
The third sector encompasses a wide range of organisations, each with its own structure and financial model. Some of the most common types include:
When these organisations run into financial trouble, the impact can be severe on the organisation and those who rely on their services. At that point you need good advice but also access to someone who understands your circumstances and the ins and outs of the specific needs for your organisation.
Raising income is never easy for charities and other third sector groups. In the current economic climate it is particularly tough. We tend to see a lot of charities, CICs and other groups, both for consultations and when we are giving talks on avoiding insolvency at various events, and they are telling us that these are the main things affecting them financially.
Rising Costs Due to Inflation - The cost of living crisis doesn’t just affect individuals. Higher rents, rising energy bills, and increased supplier costs are putting financial pressure on organisations that already operate on tight margins.
Unfortunately, these problems seem unlikely to ease in what is still quite a volatile economy with currently no clear timeline for a more long term period of stability. What with local councils often being in deficit, increasing competition for grants and sponsorship, and the drop in public charitable giving all in the mix, it looks like a rough ride ahead.
Third-sector organisations are the backbone of communities. You provide essential services and support. However, financial pressures are increasing, and you must respond to that in a positive and decisive way, or it will almost certainly get worse over time.
By seeking early insolvency and financial advice from our special service like ours, charities, CICs, social enterprises, and other third sector organisations, can explore all available options. Hopefully that means you can continue your vital work, but if not, we can look at all the options available to you.
If your organisation is experiencing financial difficulties, the best decision is to act. An early response, whatever that may be, will always be more likely to result in the right outcome.
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