Bend, not break: surviving funding cuts
Our latest resource aims to help equip organisations with the knowledge and understanding to plan for and manage their resources in a time of austerity and funding cuts. Getting through hard times will certainly be tough but your organisation will be more focused and effective as a result. This will put you in a better position to take advantage of new opportunities as they arise and to benefit from a future upswing in the fortunes of this sector.
VAL delivers a workshop of the same name to help organisations take steps towards sustainability. Contact Chris Wykes Driver on firstname.lastname@example.org for details of the next workshop, or look for the next workshop on our Training and events page
- Surviving or moving towards sustainability?
- Time sensitive
- Getting clear about finances
- Avoiding insolvency
- How long have you got?
- Creating your survival plan
- Get moving
- Managing the people in change
- Support from VAL
- Other resources
Before getting into planning for survival it's important to remember that sustainability is not just about funding. There are a number of ‘indicators of sustainability’ characterising sustainable organisations that feature relationships with stakeholders, creativity and good governance for example. These include:
- The flexibility to stay afloat in the face of unexpected external and internal changes
- The foresight - through excellent planning and connections - to know what changes are on the horizon
- Good governance and strategic planning, compliance
- Paid staff and volunteers are motivated, talented and appreciated
- Good marketing, clear image and message, visible
- Networks, partnerships, a good reputation
- Rooted in the community, strong supporter base
- An understanding of how to make best use of assets and resources
- A willingness to learn and to seek advice
Adapted from A plan for success (ELCVSN)
Surviving funding cuts is closely linked to:
- how much time you have before the funding runs out
- your options for generating more income, cutting costs and/or working in new ways
- how quickly and effectively you respond.
So the first task is to gather the information you need in order to make an informed judgement about how long your income and reserves will last.
Trustees and managers should be able to answer the following questions:
- Do you have a budget for the organisation as a whole? For the current year? For the next three years?
- Have you adjusted these budgets to take account of known funding cuts?
- Do you have separate budgets for each service or project that you deliver?
- Do you allocate core costs to each service or project?
- Do you know the budgets and timeframes for each of your restricted grants?
- Do you monitor your budgets regularly to compare actual income and expenditure to budget?
- Do you know the value of your reserves? How much of this is restricted funding?
- Have you worked out what it would cost to close down your organisation? Do you have sufficient unrestricted reserve funds to cover this?
- Do you have cashflow forecasts that cover at least a year ahead? Do these show sufficient funds to keep the organisation afloat for the next six months or more?
A simple definition of insolvency is not having enough money to pay your bills. Insolvency must be avoided, especially in organisations that do not have limited liability for trustees, because this could leave individual trustees liable for the organisation’s debts.
It is the legal duty of charity trustees and company directors to ensure that the organisation remains solvent. It would be considered negligent to allow an organisation to become insolvent through lack of attention to financial management; continuing to operate as usual when aware of potential insolvency is illegal.
This is even more important for trustees of unincorporated charities and community groups that are not companies because they can be held personally liable for the charities debts. This applies even if the organisation is a registered charity.
This simple Early Warning Guide from Locality can help you quickly assess your situation and take action.
This case study by Peter Scott explains the steps taken by a charity to avoid insolvency.
Having a good grasp of your financial situation, and especially cashflow forecasts, will allow you to make a judgment about how long you have before your funding situation becomes critical. This in turn influences what options are available. The timescales will dictate the actions you'll need to take.
For example, if you have funding for less than three months your situation is probably one of crisis management with very limited options. Depending on circumstances your options might include an emergency appeal for funds to tide you over until more certain income can be achieved. Or it might mean planning to close down.
If you're closing down with some assets to pass on to another organisation it might be a bargaining tool for them to take on some of your work/clients. And if you can raise additional funds through an appeal, fundraising event, crowdfunding or other means then this may help you to buy the time you need to negotiate a merger with an organisation that has similar aims and values.
On the other hand, if you have enough funding to survive for another six months you have a few more options in terms of re-designing service delivery and reducing costs, applying for other funding or contracts or raising unrestricted income through trading activities, increased donations or fundraising activities.
Your survival plan may be something completely new or an update of your existing business plan. It needs to be done quickly!
You need individuals or working groups that can lead different aspects of the work that needs doing – finance; fundraising and bid writing; communications; liaising with stakeholders; staffing issues etc.
Your planning will need to be informed by a good understanding of the context in which you operate as well as your internal environment. There are a number of useful tools for planning such as SWOT and PEST (also known as PESTLE or STEEPLE) to help you take in the wider context. It's also helpful to re-affirm your vision, mission and values and the outcomes you seek to achieve through your core work.
Once you've gathered your data, start putting together your plans:
First, plan for the most likely scenario e.g. your main grant is cut by 25 per cent, but you are likely to replace around five per cent through other funding and savings. Work with staff to re-design your service delivery/operational plans and the budgets that go with them based on these assumptions. Create a cashflow forecast based on the budget for this scenario so that you can identify critical points for decisions – at what point will the money run out for a particular service?
Also, plan for the worst case scenario – what if the money simply runs out? This is your closing down plan and you will need to know how much it will cost and when you need to put it into operation. This takes account of the time needed to consult with staff and fulfil formal consultation periods for redundancy, to pay off debts, get out of contracts, negotiate with funders.
Get to work on your funding strategy. Really explore all possible but realistic options for accessing funding from other sources, how you will do this, the steps and timeframes involved. This will also include reviewing your charges.
If you have sufficient reserves and enough time you might decide to hire a bid writer or invest in a trading venture that will bring dividends further down the line.
Plan how you will manage and communicate this process of change. Involve and inform staff, volunteers and beneficiaries/users, negotiate with funders and communicate with stakeholders.
- Finally create an action plan summarising who will do what by when and how this will be monitored and reviewed.
Don’t spend too much time on your plans – they are meant to be a springboard for action – and in some cases a paragraph or two will be enough to clarify your intentions and get started.
Your working group will need to take action on a number of fronts at once. Good co-ordination and communication will help keep everyone up to speed and engaged on their tasks.
Involve staff, volunteers, funders and beneficiaries as early as you can. Those who deliver or receive services may have good ideas for how to do things differently. Similarly your funders may have suggestions or useful insight.
Keep the focus on outcomes - if you have few options for survival how can you best meet your beneficiaries’ needs with limited resources?
You may well need a range of specialist support as well as information, guidance and introductions so make use of whatever resources are available.
Most people find change unsettling and many say that uncertainty is the most difficult part. Giving people a sense of control - even if that’s just knowing that they are being kept fully informed - helps to lessen anxiety and keep staff morale from plummeting. Trustees have a duty of care to their employees and wellbeing is paramount despite the inevitable pressures.
This briefing covers some of the content of our Bend, not Break: Surviving funding cuts workshop which gives focused, practical support to help voluntary and community groups facing funding cuts take the steps needed to create a plan for their sustainability. For details on the next workshop contact Chris Wykes Driver, Development Support Officer, Finance, Governance & Social Enterprise email email@example.com
We also deliver support on fundraising and project planning, developing trading activities and social enterprise, business planning and financial management as well as forums for networking and influence. See Our work for more information and the event listings on our home page.
Bates Wells Braithwaite Charity Solicitors have produced a number of legal guides:
The Charity Commission also has a range of useful resources, including:
Charity Finance Group has produced a guide to dealing with insolvency, Charities and insolvency
Governance Pages has The quick guide to dealing with a crisis
Russell-Cooke Charity Solicitors has also published a legal guide to working in partnership, called Charities working in partnership