Recession Toolkit - financial risks

There are some financial risks that most organisations are aware of, such as the possibility of not having enough money to do their work, but there is a much wider range of financial risks that organisations must be aware of. These include the following examples:

Budgetary control and financial reporting

These may include risks that the budgets do not match the key objectives or that there is inaccurate financial reporting resulting in decisions being taken on false financial figures. The organisation may not be effectively managing its credit. The following steps may be taken to minimise the risk:

• link budgets to a business plan and to your objectives.
• ensure timely and accurate monitoring and reporting.
• ensure that the organisation has adequate financial skills.
• review budgets at regular intervals.

Reserves policy

The lack of a reserves policy could result in the organisation being unable to respond to change or meet planned objectives. An outdated reserves policy could lead to people questioning the justification of reserves, for example if your organisation's income has decreased substantially resulting in an overly high reserve. To moderate this risk the organisation could:

• link the reserves policy to a business plan, the organisation's activities and any identified financial and operational risk.
• review the reserves policy regularly.

Dependency on income sources

Overdependence on one or a few funding sources could result in a high level of risk to the organisation. To diminish the likelihood or severity of this risk the organisation could:

• identify who/what they are most dependent on.
• ensure an adequate reserve.
• plan for diversification to avoid over dependency on a few sources.

Do you have a fundraising strategy?

The need to plan strategically and to invest in fundraising is even more important in an economic recession than in more normal times. The need to develop and implement a fundraising strategy is even more pressing.

Does your fundraising take account of the recession?

Whether or not you have a fundraising strategy, you should review how you fundraise in light of the economic recession. Different fundraising methods will be affected differently in a recession. You will want to gauge specifically how a recession will affect you. Your review should consider how your 'market' is being affected by the recession and not just take on the global trends wholesale.

How diverse are your income streams?

You may wish to break down your income to ascertain how diverse your income is. For example; how much of your income is from restricted sources? A more diverse income stream generally means an organisation can adapt better to changing economic circumstances and is less at the mercy of external forces.

What are your sources of income at present? It may help to divide them up as follows:

1. Grants - Government; Independent Grant-making Trusts and Corporate Grants.
2. Community/General Public: eg donations, events, membership schemes, legacies, etc.
3. Trading eg charity shops, fees, merchandise, contracts/tenders.

How sustainable are your income streams?

Ask yourself how sustainable your current income is. Review how the recession will add risk to the level and longevity of your income streams. Will government cut its grants budgets? Will the public give less? Will the local employer go bust, meaning you lose your payroll givers?

What trends can you see in your fundraising?

You will want to monitor closely the impact the recession is actually having on you, when it is happening and by how much you are affected. Set up processes to capture income trends as they happen, such as a review meeting on fundraising events compared to previous years, or review the levels of donations received regularly to see if the level or frequency is decreasing.

What capacity do you have to fundraise?

You should review your organisation's fundraising capacity. How much time and money do you spend on fundraising? How many staff and volunteers are available to help you fundraise and what are their skills and abilities? A recession may mean you need to spend more on fundraising rather than less - is your organisation prepared to make this decision?

How active is your board/executive committee/trustees in fundraising for the organisation? Is there more they could do?

Who are you working with to develop your fundraising capacity and to generate additional income? Are there organisations you could partner with to share a fundraising campaign or to employ additional fundraising support?

How are you seeking to develop your current areas of income?
Are there ways you could increase income from you current areas of fundraising or should you be developing new methods and techniques?

Have you explored all the possibilities for grant funding? Do you have an exit strategy for when large grants end? How flexible can you be in approaching funders for projects?

How does your organisation currently ask for money from the general public? Do you promote planned giving and tax effective giving techniques? Do you have a database of donors and potential donors? Do you have a fundraising calendar of events?

How entrepreneurial/competitive is your trading activity? What are the unique selling points for your organisation? What is the market for your primary purpose trading activity or associated trading? Are there opportunities for non-associated trading? Are your fees and charges commercially viable? Do you include the benefit of social outcomes in your charges?

Should your fundraising pitch change?

The recession has greater implications for some causes than others but all will need to consider how their fundraising messages sound in the current economic climate. You may wish to change your message to emphasise an increased demand for your services.

Failure to use restricted funds appropriately

This could result in the repayment of the grant, damage to the relationship with the donor and beneficiaries and potential regulatory actions. To guard against this the organisation could:

• put in place systems to identify restricted funds.
• ensure adequate budget control, monitoring and reporting.

Inability to meet long-term financial commitments

These include redundancy pay, pension commitments, loan repayments, etc. The organisation could reduce the risk by:

• reviewing the commitments.
• seeking proper advice.
• developing a reserve.

Financial Management

Tighten up your financial systems so that you can quickly address issues. Make sure you have an accurate picture of income, expenditure and cash flow. Ensure budgeting is kept up to date and linked to your operational plan.

Debtors/Creditors - Pay Creditors on the due date but not before. Try to negotiate better payment terms. Try to minimise bad debt. Consider asking for references and set credit limits. Try to spot potential bad debts early by payment patterns.

Investments/Banking - Review your investments regularly ensuring you get the best return. If you have any reserves banks are keen to get your business. Keep an open relationship with your bank manager. Review your overdraft arrangements are still in place and have not been withdrawn.

Helpful other links:

http://www.nicva.org/index.cfm/section/News/key/Storm_of_recession

http://www.ncvo-vol.org.uk/sfp/?id=11098

http://www.ncvo-vol.org.uk/sfp/finance/index.asp?id=442&terms=paye

http://www.ncvo-vol.org.uk/sfp/finance/index.asp?id=462&terms=minimise

http://www.financehub.org.uk/manage_money.aspa

http://www.bankaccountadvice.co.uk/