Charities – potential financial implications of Coronavirus

Jonathan Orchard, Partner

6 March 2020

As you can imagine we are having many conversations about the potential implications of Coronavirus on charities. It’s stating the obvious, but the full implications are unknown and these thoughts may quickly be superseded by events. It’s also probably stating the obvious that the implications will vary greatly across different types of charity. But there are some common themes emerging.

Business continuity plans – this could prove the ultimate test of the robustness of BCPs. The complexity (and potential cost) of putting these plans into action depends on the nature of the charity. For example health and social care charities face major challenges in terms of keeping those in their care properly looked after. This may include the need for additional staff costs, significant deep clean costs etc. We know that some charities are already in discussions with commissioners about funding these potential additional costs. For others it will be more about the charity’s ability to offer remote working.

Financial resilience – Flybe was a classic example of what can happen when a business enters into a crisis in a weak financial position. This potential crisis is also a good example of why charities need to hold reserves when exposed to financial risks. For example, a charity reliant on a major fundraising event or conference for a significant portion of its income will face significant financial risks should that event need to be cancelled or reduced in scale. We are seeing a reluctance on the part of insurers to cover losses in this scenario.

Liquidity – it will be cash flow implications that matter most in the immediate period. If projects are delayed due to available staff, cancelled events etc, this may well have a knock on impact of cash receipts – while the cost base still needs covering. It is possible that staff availability at funders may delay expected grant/contract payments. Cash flow projections need to be done under different potential scenarios. If necessary discussions need to be had for standby cash facilities via overdrafts or draw downs on deposit accounts/investments (not withstanding the fact that stock indices are sharply down).

Investments – With many charities having a March year end – investment valuations are likely to be sharply reduced. This could have an impact on bank covenants and pension liabilities. For those reliant on investment income it would be fair to assume this income could be sharply reduced in the coming year.

Crisis communications – this is likely to be a fast moving issue. Management teams need to have processes in place for quick decisive decision-making and ways to keep trustees appraised of events.

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