All businesses carry with them a certain responsibility to their employees and their customers, to ensure that they remain solvent and can meet the financial requirements and responsibilities that they have. For charities, this responsibility is arguably greater, with a great number of dependents relying on the money that charities raise and earn. With such an important responsibility, the challenge on charities is considerable.
Downfall of the Kids Company
An important story that has recently broken in the news was the financial collapse of the so-named, Kids Company. Whilst the charity has been embroiled in a number of high profile accusations and issues of late, the financial state of the company has proven to be catalyst for the government recovering just £1.8m of the grant afforded to the Kids Company only a week before they went bust.
Much of the financial turmoil surrounding the Kids Company has been resultant of trustees failing to build sufficient financial reserves, and living, as quoted by the Guardian, ‘hand to mouth’. This was no doubt compounded by the sudden departure of two leading finance directors, frustrated by the lack of awareness of the charity’s financial frustrations.
Camila Batmanghelidjh, former Chief Executive of Kids Company, who is seen by many as the main culprit for the charity’s downfall, has since agreed to stand aside from her position, so that the company might secure the emergency restructuring grant, in order to pay overdue staff wages and continue to support vulnerable children.
Best Practice for Charities
The Kids Company story goes to highlight the important best practice that charities should follow to avoid the dangers of insolvency. Our key message to all businesses, including charities, would be that a prevention of insolvency procedures is always better than a cure. Ensuring that financial reserves are built up, and strict financial planning are both vital to a charity’s ongoing financial health.
The responsibility that charities hold ensures that financial health should remain top priority. Perhaps the most potent example of this importance are the 6000 vulnerable children, whom having been previously cared for by Kids Company, are now in need of some other form of support.
If you would like to discuss your insolvency needs with the Parker Andrews team, get in touch today via our contact form, or give us a call on 0800 612 7593, and we’d be happy to refer you to one of our experts.