When even Marks & Spencer starts feeling the effects of a downturn in public spending, it looks like times are definitely getting harder. And it's inevitable that hikes in the cost of food, utilities and borrowing will affect the amount of spare cash people have for charitable giving.
How can charities respond if donations fall? Efficiencies of scale and reviewing suppliers are a sensible start, but those who think we're in this for the long haul may want to consider looking at how robust their financial modelling is under a number of scenarios. It's not an amateur skill, but it can take some of the guesswork out of questions involving the financial effect on services. The process allows different scenarios to be run against an organisation's financial processes to see what the impact would be.
Negative financial impact doesn't hit all aspects of a business equally, and running this exercise can help trustees decide if priorities need to be changed. If revising your financial strategy is likely to become inevitable, it's much better to be on the front foot than struggling to keep the show on the road reactively.
Conversely, financial modelling can also show the resilience of different areas of your business, allowing you to concentrate on what needs to be 'fixed' rather than expending finite resources on areas that are stronger.
Trustees may, for example, ask themselves about their reserve levels. Reserves policies should be living documents that can be updated with the changes explained accordingly.
Charities can't cut the price of jeans when the going gets rough, but by taking proactive steps to understand the impact a financial downturn could have on their finances and planning, they can help make sure they don't lose their shirts.
- Rosie Chapman is executive director of policy and effectiveness at the commission.