One in 10 UK charities face bankruptcy

Up to one in 10 UK charities face bankruptcy by the end of 2020 because of a £10bn shortfall in cash caused by the coronavirus, according to a study by an independent charity Pro Bono Economics.

The coronavirus crisis will trigger a £6.4bn loss of income for charities over the next six months just as demand for extra services – ranging from health to debt advice and social care – piles on extra costs of £3.7bn.

There are just under 170,000 general charities in the UK, sharing a total income of about £51bn, according to the National Council for Voluntary Organisations (NCVO). Most are small charities with income below £100,000 a year. The study said with nearly two-thirds of those reported they had made “significant” cuts to services – one in eight (13%) expected to cease activity within months.

More resources

“If we don’t funnel more resource to charities in the coming weeks, it’s clear that many will struggle to survive,” Matt Whittaker, the chief executive of Pro Bono Economics. While charities have been drawing on reserves to get them by, there are now additional sources of funding available, according to law firm BDB Pitmans.

“Initially in the pandemic, lenders sought to mitigate their risk by only considering lending to existing borrowers (principally those with whom they already had a secured lending relationship),” the firm said in a recent bulletin. “This position has changed as the government and media have exerted pressure on lenders and with the fact there are now over 60 accredited lending institutions providing government-backed lending. Some of these are not your typical high street lenders; they are actively looking to grow their retail presence at this time and have more flexible credit profiles.”

Risk management

Risk management has proved critical to reopening shops and premises to get the sector back to work. But long-term risk management will be critical in helping charities survive the pandemic.

In fact, it is a legal obligation for non-company charities with incomes of £500,000 or more (and charities with incomes above £250,000 plus assets worth more than £3.26 million) must include a risk management statement in their trustees’ annual report, according to the UK’s Charity Commission. Company charities must report on their main risks and uncertainties in the directors’ report (unless they are classed as a small company by law). “It’s good practice for smaller charities to report on their risk management activities too,” says the industry watchdog.

IRM provides a range of help and guidance to those working in the sector through its Charities Special Interest Group. That includes free guidance for those just starting out on their risk management journey – and advice on getting better for those already on the way.

 

 

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