WHAT BECOMES OF THE BROKEN HEARTED- WHEN WINDING UP LOOMS?

Unquestionably charities are enduring tough times.  Donations are down and donors of all sizes are having to consider outlays, large and small, more carefully than in recent memory.  Faced with this many, frequently smaller, charities are finding that they having to contend with a difficult question, do they struggle on in the hope that their donors will rekindle their generosity, do they merge, or do they cease their activity all together? If none of these is viable, what other options are there?  Here we consider some of the questions that any charity faced with such a dilemma should consider.

When donations cease to flow as readily as they once did, charities must ask why.  Is it because they have relied too heavily on a single source or sector which has now fallen upon hard times?  Is it because they have lost one or more donors to a ‘rival’ charity?  Is it because the sector in which they operate generally is depressed and they are no more impoverished than others around them?  All of these questions and more must be considered. 

Once this exercise has taken place, a consolidated picture needs to be painted and options for how that charity will progress should be considered.  It may be the Chair or CEO needs to be ruthless and take the unquestionably difficult decision that the charity cannot continue in its current form.  If that is the case and the charity is simply wound-up and its assets distributed then common sense dictates that beneficiaries will be the biggest losers. Is this really the best and only solution?

Before taking a decision of such magnitude and finality, the charity might wish to consider whether it can adjust to offer a better ‘fit’ within the marketplace whether this means broadening or narrowing the way in which it interprets its objects, or perhaps a merger with a likeminded body.  Increasing numbers of charities have realised that merger should not be viewed as a defeat but as a commonsense way to proceed in a competitive environment.  Businesses in the commercial sector have evolved through mergers for generations, so why not charities?  Indeed, by pooling resources, knowledge and of course funds, the beneficiaries of both merged charities stand the very real chance that they will benefit from such a move which must surely be the ultimate aim.

Surveys have shown that whilst smaller charities have been the hardest hit by the recent economic downturn, they also have been the most reluctant to adjust.  This seems a perverse statement to make, since smaller charities, like any other small or medium-sized enterprise are more ‘agile’ by their nature and better placed to take advantage of market changes than their larger and more administratively complex competitors.

The Charity Commission is aware of the testing times which charities are facing and encourages requests for advice and guidance.  Trustees owe a duty of care to the beneficiaries and must understand that the best course of action may not always be the most obvious one. 

Trustees should view the current climate as a prompt to take stock of where their charity is and to educate themselves as to how they can adapt and overcome.  The testing times in which all businesses, charitable or otherwise, are compelled to operate should be viewed as an opportunity and catalyst for change rather than the regrettable death of a golden age.

For further information on this article or any other charity related matters please contact Chris Harper.