Working through financial challenges

Use this page to understand more about the context of difficulties for organisations and how to develop resilience in this area.

It’s not uncommon for charities to experience periods of financial difficulties. This is especially true when there are challenges and uncertainties in the wider economic environment.

Working to secure funds when there's a higher demand from those we seek to serve, can put pressure on a charity’s ability to survive and thrive.

Financial difficulties can sometimes lead quickly to insolvency. This is a complex area and if there’s a concern that a charity may be approaching insolvency, trustees should take professional advice as soon as possible.

Broadly speaking, insolvency is where an organisation's available assets are not sufficient to cover the costs it faces. This includes the costs of closure such as staff redundancy payments.

Managing financial difficulties in a charity is a challenging time for all involved. We may not have done this before and we may lack confidence in our knowledge, skills and experience.

This is perfectly normal. Taking on an inquiry-based approach can help us ask the right questions. Even if we don’t know the answers, it can help us find the right kind of support.

Financial difficulty is more likely during periods of uncertainty. During these times, it’s important to understand the current financial position and the most reasonable longer-term financial position of your charity.

This isn’t always easy and often requires scenario planning (an exercise which presents the financial impact on our organisation of the range of options ahead of us) which can take time.

However, this is time well spent and an investment in the future. If you can predict financial difficulties ahead, there’s a greater chance of avoiding them.

• To learn more about how voluntary organisations can cope in challenging financial periods, read The Lloyds Bank Foundation’s Organisational Resilience guide for voluntary organisations looking to build their resilience to uncertainty and manage financial risks.
• For information on risk management, read our guidance on why and how to manage risk.
• Read the Charity Commission's guidance on charities and risk management (CC26).
• Read our guide on scenario planning for voluntary organisations.

NCVO worked with Liz Pepler at Embrace Finance to create this guidance.