Plan now, rather than hold out for last-chance funding

Make sure that you plan your closure in time to rescue some of your good work, says Peter Gotham of Macintyre Hudson

Peter Gotham
Peter Gotham

Across the voluntary sector, traditional sources of funding are drying up. I am left wondering how many charities are gambling on "something turning up" to avoid a possible closure in six months or so? Sometimes reputation, relationship, hard work or just plain good luck will bring that extra bit of income, and the charity lives to fight another day.

But even a rescue can be only a short-term solution, merely postponing the inevitable - whittling away at financial and emotional reserves in the meantime. And if the gamble does not work or bad luck or increasing disillusionment intervene, then often a planned closure becomes impossible and the train hits the buffers. There is then no chance of a controlled closure - with the possible saving of some activity and even jobs.

At this stage in the third sector economic cycle, I am increasingly seeing a difference between the charities that hold on until the last moment, and end up with a chaotic closure, and those that play a little safer.

Charities with a reasonable level of reserves might, with good advice, have enough time and energy to rescue some of the charitable delivery - and perhaps to form a successor body that is more able to cope with the changes buffeting the sector at the moment.

Any threat of closure, however remote, is stressful, and early advice is important to help trustees understand the risks they are facing and assist in keeping the team together.

One form of liability that can cause particular difficulty is contingent liabilities - liabilities that become due, or crystallise, only in certain circumstances. These can commonly be dilapidation clauses on leases, termination payments due on early cessation of photocopier or premises leases, or termination payments due on defined-benefit pension schemes. Charities can find their decision-making unduly affected by a wish to avoid these 'cliff-edge' liabilities - where a demand will, of itself, make the charity insolvent.

I have seen premises retained, at a constant drain on resources, just to avoid crystallisation of premises liabilities. Particular staff are even retained to avoid crystallisation. Staff are sometimes kept on because the departure of the final member of a pension scheme would crystallise a defined-benefit pension liability.

One question about liabilities is when a contingent liability becomes so imminent that it needs to be taken into account when assessing solvency.

Obviously the situation will be different from charity to charity, and I would not wish to risk giving catch-all advice in a magazine article.

However, ignoring the issues rarely helps to maintain the positive dynamics that good delivery of the charity's mission requires.

Conversely, informed early advice can sometimes assist in identifying negotiation options to manage the relevant liabilities. This can mean there is then time, with teamwork, to identify possible routes forward for the effective delivery of the charity's mission.

Peter Gotham is a principal at MacIntyre Hudson

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