No matter what we thought life after the Covid-19 pandemic would look like, very few of us expected to see CPI inflation hitting 10%, accompanied most recently by forecasts of a 6% base lending rate during 2023. Yet, this is the backdrop to the 2022 Charity Finance Week so it seems apposite to explore a few ways in which charities can best cope with such an inflationary environment.
Open and honest
Rising inflation, and the resultant higher costs, cause multiple challenges and it’s really important to accept this and be honest about it. Not all your charity’s leaders, executives or trustees, will appreciate exactly how rising inflation affects the organisation. It’s vital, therefore, to lay it out clearly in black and white, invite questions and respond as helpfully as you can. Explain which costs have biggest impact on the charity, and which are rising now or will come under pressure in the longer term.
Communicate
Having outlined the impact of inflation on the charity, don’t suddenly retreat back into the finance office (physical or virtual). Depending on your specific situation it may be useful to agree regular email updates, or if warranted to suggest more frequent meetings of either a finance sub-committee or the trustee board.
Be realistic
Each charity’s ability to respond to rising costs will vary and it’s important to be realistic about that. You may face staff shortages as pay in other sectors becomes more attractive, but if you cannot respond by raising pay rates then start evaluating the options for reducing services. Also, I know one charity that has explained that they can’t increase pay rates but has made one-off payments so that staff know it appreciates their cost-of-living pressures.
Managing reserves
Charities hold reserves to help deal with unforeseen situations, so now is more likely to be the time to draw down reserves than build them up. Current needs must be weighed against those of the future and undue risks should be avoided, but it’s perfectly appropriate to use reserves to smooth the impact of inflation if possible – especially if action now can mitigate potential problems down the line.
Seek assistance proactively
The way that these pressures have emerged, and the environment the UK has found itself in mean that although much assistance is available, it isn’t easy to find. In addition to the government’s promised action on energy bills there are numerous bodies offering grants – often at county or district council level. These may be directly linked to heating costs, to facilitating the use of charitable buildings for warm spaces or to undertake energy efficiency audits etc.
Don’t lose focus
It’s easy to be distracted by talk of “energy price caps” etc, but now more than ever it’s important to ensure that normal disciplines of tightly controlling costs and finding the best deals are followed. If energy contracts are ending then still search the market, even if all options represent a significant increase.
This isn’t intended to be exhaustive, but for all charities it is vital to be clear about which costs, and hence increases, have the largest impact and be open and proactive about managing them.
Nick Moore is a freelance charity consultant, and a charity treasurer
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