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How to manage your charity during tough times

14 Mar 2023

Many charities across Scotland are feeling the effects of the current economic crisis. Rising inflation is increasing running costs for services, while some charities are experiencing a loss of income due to budget pressures on national and local government. At the same time, we know that many organisations are experiencing increased demand for their services, while finding it difficult to recruit new staff.

We know that managing your charity during tough times like these can be extremely challenging. That's why we have provided some guidance and advice to help you understand your legal obligations, navigate challenging circumstances, and find out where to turn for support.

What to do if you are experiencing financial difficulties

As a trustee, it’s vital to have a clear view of your charity’s financial position, both in the short and medium term. Think about the issues (and seek advice if you need to) as early as you can, rather than waiting for it to become a full-blown crisis.

If you are beginning to experience financial difficulties, there are several things you can to do mitigate the impact, including:

  • Identifying potential risks to your income sources and planning accordingly
  • Minimising costs and stopping non-essential spending
  • Reviewing your reserves policy and releasing funds where appropriate
  • Conserving, improving or diversifying your income streams
  • Having discussions with your funders about possible challenges and how they may be able to help
  • Checking if you are receiving energy bill relief payments from the Government, as well as other charity discounts or exemptions
  • Merging with another organisation or working collaboratively to cut costs
  • Seeking external financial support and guidance

The Charity Commission for England and Wales has more information and advice about this in their cost of living pressures guide.

If the issues you are experiencing have resulted in a substantial financial loss to your charity, you should report this and the steps you are taking to address the issues to OSCR as a notifiable event. This allows us to make sure that serious issues are dealt with appropriately to minimise the impact on both the individual charity and the sector overall.

Be prepared to make difficult decisions

It’s important to remember that charity trustees must always act in the best interests of the charity, even if that means making some difficult decisions. It’s also vital that you make decisions in line with the powers set out in your governing document.

There are likely to be many factors to consider and you may have to strike a balance between different options, for example:

  • Cutting costs now to ensure you have enough funds to continue supporting beneficiaries in the future; against
  • Continuing to spend funds on supporting present beneficiaries with the possibility that this could result in a reduction in services or closure of the charity in the future.

When making difficult decisions like this, it may be helpful to consult with beneficiaries, supporters, staff and volunteers – however it’s important to remember that the final decision is the responsibility of the trustees. 

You may also want to seek advice from professionals such as the charity’s auditor or legal advisors, as well as speaking to your local Third Sector Interface or any umbrella organisations your charity belongs to.

When you do decide what to do next, you should make sure to record your consideration and all decisions made, along with the reasons for those decisions, so that it is clear why you have taken a particular course of action in the interests of the charity.

What to do if your charity cannot continue to operate

It may be the case that your charity is insolvent – meaning it is unable to pay its liabilities as they fall due. If this is the case, you will need to obtain specialist support so that the situation can be dealt with appropriately. There are defined processes for dealing with insolvency depending on the legal form of your charity. A company for instance will require an Insolvency Practitioner.

If you decide that the financial pressures are too great and your charity cannot continue, you may want to wind up the charity.

Before you do this, you must consider what will be involved in dissolving the charity. This will depend on:

  • Your charity’s legal form (SCIOs have a separate process you must follow to wind up your organisation)
  • What your governing document says about how it can be dissolved
  • What will happen to any remaining assets

Once you’ve considered these issues, you must then seek OSCR’s consent to wind up or dissolve your charity.

Where to find support

If you are concerned about the impact of the cost of living crisis on your charity, here are some resources to help you find further support and advice: