Charities: Big plan
The challenges of the Big Society
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Talking to charity clients at present, I find that the aftermath and consequences of the CSR (Comprehensive Spending Review) are uppermost in trustees' and finance directors' minds. There were, however, a few positive announcements from the CSR. The Chancellor reiterated the Coalition's promises of a bigger role for the charity sector. This is to be achieved through its vision of "Big Society", which aims to place more power and opportunity into people's hands.
There will be £470 million capacity building funding, spread over the CSR period, to support the voluntary and community sector, including an endowment fund to assist local and community organisations.
The Cabinet Office will be introducing a £100 million transition fund, as part of the above measure, to support those in the charity sector that are most affected by public spending reductions.
The fund will be a short-term measure, with £10 million being made available in the current financial year and the remaining £90 million in 2011-12. The CSR sets the spending limits for every government department for 2011-12 to 2014-15. Funding will trickle down to local authorities, who will now have to finalise their own spending plans, with the first effects of the cuts likely to be felt from April 2011.
The biggest casualties in the CSR were the Department for Communities and Local Government and the Department for Culture, Media and Sport.
As well as needing to explore other revenue-generating opportunities, charities more than ever require strong strategic planning to cope with these particularly challenging times. It is most likely to be weak financial management that will result in charities failing. Strong governance will facilitate strategic planning. Such charities will be able to deliver timely and meaningful management information that will enhance the effective financial management process.
Throughout this process, trustees need to be conscious of their obligation to safeguard the charity's assets and this may well require them to ask difficult questions. Trustees need to be aware of the time taken to reach the necessary decisions and contingency plans. There is no time like the present. Charities should have in place a long-term strategy to meet their charitable objectives, covering finance, operations and governance.
Budgets - including income and expenditure, cash flow and balance sheet forecasts - should be drawn up at a level of detail to allow trustees to understand the impact of the new funding regime. Such detailed scenario planning should take place for all realistic contingencies, such as: "What if our statutory income fell by 25 per cent?"
Other strategic planning tools to consider include:
● SWOT (strengths, weaknesses, opportunities and threats)
● STEEPLE (sociological, technical, economic, environmental, political, legal and ethical)
There will be winners and losers during this period. Winners will have considered their environment, implemented good management, have strong cash resources and use their reserves appropriately. Recessions tend to result in polarisation: the strong get stronger and the weak either fail or lose their identity through enforced merger.
It should be emphasised that "cash is king". There is a well-known management mantra: "Sales is vanity, profit is sanity and cash is reality". Charities need to ensure that their finances and working capital are in good order, protect their liquidity and re-examine their financing, funding and pension exposures. They also need to monitor their performance against financial and non-financial KPIs (key performance indicators). This can best be achieved through adopting a "hands-on" and proactive approach to cash management.
Anthony Epton heads the charities group at Goldwins, chartered accountants, which specialises in providing cost-effective expertise to small and medium-sized charities. Anthony is the author of the Institute of Chartered Accountants of England and Wales’ leading book on charity accounting and auditing. He can be contacted on 020 7372 6494 or firstname.lastname@example.org