Are charities prepared?

9th March 2020

We are truly living in unprecedented times. It is incumbent on all of us to face the challenges ahead, and the risks faced by the charity sector are no less than the wider business community. Rarely has there been a time that the sector has been faced with more trepidation.

The landscape in which you operate has changed so quickly that most have barely had time to take stock. For Trustees there are often additional challenges as they may also be dealing with the same issues in their place of work, or home life.  

There are a number of issues that charities need to be considering as a matter of urgency, but there is also assistance available.  

Fundraising

Charities receive income in many forms, but many are particularly reliant of fundraising, and much of this is done through mass participation events. The numerous announcements either postponing or cancelling events will cause significant hardship to many charities, who at best will see their income delayed but, in many cases, it will be income lost.

Charities need to be asking themselves whether there is anything that they can do to bridge the funding gap, or whether they need to take action to cut costs. Having a clear understanding of a charity’s reserve position is crucial to working out whether they are able to survive a significant fall in income, and for how long this can continue.

We are available to help with cash flow forecasting and strategic planning. Understanding the cash flow impact is essential so that charities identify the size of the issue that they are facing. This then provides a clearer focus to the strategic planning needed.

At a time when face to face contact with potential donors is all but impossible, charities need to review their fundraising strategies to ensure that they are not missing opportunities to connect with individuals and businesses.

Charity shops

The restrictions on the movement of people is having a significant impact on the high street. The press coverage of this issue is largely revolving around larger retailers, coffee shops and pubs, with the impact on charities having been largely overlooked. If people are not leaving their homes, then they are not coming into the charity shops and so no income is being generated. At the same time, no goods are being donated and staff still need to be paid.  Consequently, an activity that should be generating funds for a charity is now a cost.

Charities need to be very clear on their cost base in running shops to ensure that they can cope with a period of inactivity.

We would encourage charities with charity shops to apply for the 100% extended rates relief available for 2020/2021. More information is available here.

Falling ivestment income

The FTSE All Share index has dropped by 34.1% since January 2020, this will have real impact on charities that hold investment funds.  Given the economic crisis that we are heading into it seems highly likely that this will have an impact on the income generated from investment portfolios.  If companies are not making any profits then they are likely to reduce their dividend rate – possibly to zero.  If a charity is heavily reliant on this investment income then it should now be making contingency plans on the assumption that its income will fall. 

We have always advised charity clients to have clear investment strategies in place, which protect the charity against severe volatility. Charities should also be reviewing their reserves policy as well as their working capital needs to build their short-term resilience.

Loss of key employees        

It is estimated that at the height of the epidemic about 20% of the workforce could be affected. How would you cope without some, or possibly all, of your employees for a period of time?  Are you able to put alternative working arrangements in place so that people can work from home?

Risk to beneficiaries

Many charities work with vulnerable members of society. Can services be maintained and is it safe for them to attend visits or sessions?  The cost of a ‘deep clean’ to properties could run into many thousands of pounds.

Government assistance

There is help out there for charities, but it is not completely clear what this assistance will be. Rishi Sunak had already announced £330bn of support for the economy, but it is still not certain which of the measures announced will be accessible for charities. The critical cost most charities face are salaries. It seems likely that there will be emergency funding available to help organisations meet these costs. There are also likely to be loans and a number of grants that the sector can access to help manage cashflow.  

It has been determined that the Temporary Coronavirus Business Interruption Loan Scheme which was announced to provide loans to SMEs of up to £1.2m and has now been increased to £5m, will be also be available to charities with more than 50% of their income from “trading activities”.

Sunak has announced that this loan will be interest free for 12 months. 

HMRC has also announced that organisations can use the Time to Pay scheme, and so can defer payment of VAT and PAYE if agreed.  This could be a crucial lifeline for many.

Requests have also been made to try and speed up the gift aid claim process, and to broaden the range of donations that would qualify.  This would free up millions of pounds for the sector.

More information is to be published by the government, we will keep you updated via our Coronavirus Knowledge Hub

Funders being more flexible

All funders will be aware of the situation that many charities are finding themselves in. 70 of the largest UK charity funders recently signed a joint statement pledging to help the sector by being more flexible about the timing of payments and the associated reporting requirements. It is therefore worth talking to your funders to understand what they can do to help.

Everyday there is news from another funder who is willing to help the sector. Today Martin Lewis, of Money Saving Expert, has offered £1m in grants for small charities to fund projects related to the pandemic. There are many more donors who are making similar pledges.  

Charity Commission support

The Charity Commission has announced that if any charity needs an extension to their annual return deadline then they can ask for one. Furthermore, for incorporated charities, Companies House has announced that all companies can apply for a two-month extension to file their accounts and that this extension will be automatically given.

These are very difficult times for all, and we will provide whatever support that we can to the sector. If you would like to discuss any matters further, then please get in touch with your regular Bishop Fleming contact.

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