Why Directors Delay Getting Advice

The number of charities facing financial difficulty is expected to rise this year due to an unprecedented demand for support against a backdrop of increasing costs and reducing income.That is the view of a North East restructuring expert, Chris Ferguson, who is Director of Recovery & Insolvency at RMT Accountants & Business Advisors based in Gosforth, Newcastle.The charity sector continued to see high levels of distress in 2024 with the recent insolvency of counselling charity, Relate, being the latest high profile casualty within the not for profit and community services sector. The Chancellor’s Autumn Budget in October 2024 set out measures to help charities in the wake of the ongoing challenges facing the sector, but the rise of the national living wage and employer national insurance contributions (NICs), effective from April 2025, will place further burden on the finances of charitable organisations that are already struggling to cope.Charity revenues are particularly susceptible to turbulent economic conditions.  In addition to impending cost increases, the cost-of-living crisis continues to impact the disposable incomes of prospective donors, with increasing food and energy prices and the withdrawal of the winter fuel allowance likely to impact donations, placing further pressure on charity resources.  Trustees are therefore being warned that the rise of charities in financial difficulty is likely to continue in 2025.Findings from research undertaken by the Charities Aid Foundation (CAF) in 2024 showed that many charities are at maximum capacity and many more are being forced to make difficult decisions on who they can help.  But, despite the overwhelming requests for support, one in eight charities are faced with having to make redundancies or reduce staff numbers.  Half of charities reported that the cost-of-living crisis had negatively impacted staff and volunteer morale (52%) and many were struggling to recruit or retain suitably qualified candidates or volunteers (51%).And CAF research shows that many charity leaders stated that they spend most of their time firefighting, with a third stated they feel the sector is ‘unhealthy’. Chris Ferguson warns that Trustees need to urgently focus their attention on maintaining accurate financial information and emphasises the importance of Trustees continuously monitoring their financial position. He says “Trustees must focus on monitoring and forecasting their income and expenditure for the year ahead, particularly given the significant wage and NIC cost increase they will face later this year following the announcements in the Autumn Budget.  All Trustees have an obligation to ensure they have full visibility over their charity’s operation, ensuring that resources are managed responsibly and they are acting with reasonable care and skill when undertaking their role”. Trustees must not lose sight of the importance of recognising these responsibilities, particularly where charities find themselves in financial difficulty.  “Trustees are often volunteers giving up their own time to support their local communities.  However, many do not fully appreciate that they can become personally liable for charity losses if they have not complied with their basic duties as a Trustee. This is clearly a risk many Trustees do not envisage when they agree to take on a voluntary role.” Ferguson warns. Trustees are advised that some of the key warning signs of distress may include:-Minimal levels of unrestricted funds Declining income levels from donations or grants Reducing profitability, or the charity is running at a deficit Arrears with landlords and suppliers Discovery of financial irregularities Where Trustees believe that a charity is in financial difficulty, they should seek immediate professional advice.  “We have supported a number of charities with financial issues over the past 12 months.  Seeking support as early as possible means that Trustees are complying with their own statutory duties as representatives of charities.  Initial advice is often free, so there is no cost for seeking independent professional advice as early as possible”. Trustees that require a free initial discussion can contact Chris Ferguson on 0191 256 9500 or by email at chris.ferguson@r-m-t.co.uk or Chris Wray on 0191 256 9500 or by email at chris.wray@r-m-t.co.uk.