How to ensure a charity’s financial sustainability during COVID-19
13 January 2021: COVID-19 has increased demand for charity services while impacting revenue-raising opportunities. Helena Wilkinson, Head of Charities at Price Bailey, suggests the impact is likely to be even greater in 2021 and outlines actions charities can take to manage financial sustainability.
Amid massive support from the public, some charities performed better at the beginning of the coronavirus outbreak than they might have in a normal year, according to Helena Wilkinson, Partner and Head of Charities and Not for Profit at Price Bailey. But as the pandemic continues into 2021, so will its impact on fundraising. Wilkinson predicts that applications for available sources of funding are likely to increase significantly.
In April 2020, the UK government announced £750m in support for frontline charities to enable them to meet increased demand. Charities have also been able to access business support measures such as VAT payment deferrals, business rates relief and the furlough scheme.
A special report by the Charities Aid Foundation on UK support for charities during COVID-19 published in October 2020 indicated that public donations totalled £5.4bn between January and June. This was £800m more than the same period in 2019. Overall, the report – which examined support between January and August 2020 – found that the proportion of people donating was largely in line with previous years. However, levels for some activities such as sponsorship and physical fundraising had dropped.
Wilkinson, a former vice-chair of ICAEW’s Charity Finance Professionals Community, says: “If people are made redundant or if companies are struggling to be profitable, they will cut costs where they can, so I’m envisaging that the bigger impact on the charity sector is still to come.”
Managing change and financial sustainability
One of the lessons from COVID-19 is that organisations need to be adaptable and able to manage change. This includes reassessing measurements for success, which requires an understanding of what the organisation is trying to achieve and continuously re-evaluating models to see if they are working, says Wilkinson.
“If you’ve got the right systems, processes and feedback in place, you can move in the right direction. If you haven’t, then you will revert to your old record of delivering,” she adds.
Financial sustainability currently is a key topic for charities and one that Wilkinson will be addressing at ICAEW’s Virtual Charity Conference in January. She says: “Financial sustainability is about using resources effectively, managing costs, income and income expectations, and how and what you deliver within those means. It’s also about probity, financial management and internal controls.”
For example, an organisation could have six long-term goals but, in the current COVID environment, Wilkinson’s advice is to the organisations to look at scaling back down to an essential bucket and deferring activities which are seen as desirable or nice-to-have. The essential goals are the objectives that are most effective in maintaining services and yet keeping costs under control. Even so, critical activities may need to be scaled back too to manage future financial sustainability.
“You need to start categorising your business model to understand what you do and where it fits into those pots (essential, desirable and nice to have) and really start to model the income which will fund these,” she says. “How certain are you that the income is going to come in? Where is it going to come from? How many of those pots can you engage with and for how long?”
She adds: “Let’s say you get restricted funding to start a project and you do this wonderful work, but the funding ends and the project ceases – that’s not financial sustainability. Financial sustainability is about what happens next. Is it something that has to be provided regardless, is it from your essential pot or how are you going to redeploy resources? If the activity is worthwhile then financial sustainability would feature in ensuring its survival in the financial planning of the organisation.”
Unified mission and purpose
Financial sustainability is not in a box of its own, says Wilkinson, but part of good governance. This means understanding the risks and how you maintain, grow or manage the organisation depending on the circumstances.
Wilkinson has worked with boards, been a trustee, a chair of a charity audit committee and been involved with board training. “One of the first things I ask a board to do is write down what they think the charity is about, what it is trying to achieve and how it does it. The variance of the message gives you an indication of how well that board works together,” she says. “The more they come up with the same answer, the more they are going in the same direction; the more variance, the more you have a disjointed board.”
If an organisation has a disjointed board not fully focused on the right mission, this then starts to feed into everything they do, from the way they look after beneficiaries to the way they deliver services, assess their income, effectiveness and use of resources, explains Wilkinson.
Finances are not always viewed as a central part of everybody’s responsibility, she says. “But now, because it’s so important to start looking again at purpose and mission, and even scaling back and focusing on key aspects of what you want to do and deliver, there is probably more than ever a need for boards to get behind that.”
Boards should ask challenging questions about the strategic plan, ensuring they understand the numbers, what assumptions are being made in the forecasts and that they have been given the right information. Wilkinson concludes: “What’s key is that the boards get those trigger points correct so they can get those important decisions right the first time around.”
The role of the board
Helena Wilkinson will explore the different ways boards can ensure they have the right information to deliver on financial sustainability and their decision-making processes at ICAEW’s Virtual Charity Conference on 21-22 January 2021.
COVID-19 implications for charity accounting was published in December 2020. This ICAEW guide highlights the key issues arising from COVID-19 that may require consideration in connection with trustees’ annual reports and accounts for charities.
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