The board needs to know before the money runs out
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By the time trustees are asking whether the charity can make payroll in three months' time, the problem is usually obvious. The trouble is that most of the better choices have already gone.
There is less time to change how a service runs, replace lost income, renegotiate a contract or talk to a potential partner. The recruitment has happened. The lease has been signed. Staff have notice periods and redundancy rights, and money has been promised to programmes. Decisions that would have been uncomfortable six months ago have become urgent, and a good deal more painful.
This is why I think we talk about financial resilience in slightly the wrong way. We talk about reserves, income and expenditure, management accounts and whether this year's budget balances, and all of that matters. But resilience is not only about how much money a charity has.
It is about how quickly the board notices that the financial story has changed.
Knowing what happened is not the same as knowing what happens next
Most boards understand that they need financial information. They receive accounts. Someone reports the bank balance. Actual spending is compared with the budget, and the treasurer explains anything that looks odd. In a larger charity the reporting will be more sophisticated still.
None of that necessarily tells trustees whether the organisation will be viable a year from now.
A set of management accounts can be entirely accurate and still be looking in the wrong direction. The budget may have assumed that a major grant would be renewed. The contract that has paid for three posts for years may now be uncertain. Salaries may have risen faster than the funding attached to a service, or demand may be growing so quickly that delivering more is quietly making the position worse. Nothing is wrong with the accounts. The assumptions underneath them have changed.
The danger is not always that trustees lack the numbers. Sometimes they have the numbers and haven't realised that the story those numbers are telling is no longer the one they agreed.
That is where reporting has to become foresight, and the Charity Commission has become increasingly clear about it. Its 2026 sector risk assessment tells trustees to act on early warning indicators while they still have a range of options. Its guidance on charities in financial difficulty asks for cash flow forecasts, budgets, business plans, reserves, and assets and liabilities, not simply historic accounts.
Trustees don't need to predict the future. They need to notice when yesterday's plan has stopped describing tomorrow.
Financial difficulty does not automatically mean somebody has failed
It is very easy to look at a charity in trouble and work backwards. Surely the trustees should have known.
Sometimes they should.
The Charity Commission's findings on Coventry City of Culture Trust, published in September, are a serious example. The regulator found misconduct and/or mismanagement involving ineffective trustee oversight of the charity's finances. It identified inadequate budgeting and financial planning, insufficient scrutiny of financial sustainability, overreliance on the executive team for financial decision-making, and a failure to report financial risks and the loss of key funding to the Commission promptly.
There is a real lesson there about oversight, and it is worth being careful not to draw it too broadly. The Commission did not find dishonesty, and I wouldn't read motive into what it did find. What it describes is a board that did not test whether its plans stayed affordable when funding changed, and leaned on its executives when it needed to form its own view.
Charities also work in uncertain conditions. Funders change direction. Contracts disappear. Costs rise, policy shifts, a major donor withdraws. Sometimes the ground moves faster than any board could reasonably have anticipated, and financial difficulty is not, on its own, evidence of poor governance.
What matters is what the board knew, what it reasonably could have known, and what it did when the position changed.
Being needed is not the same as being sustainable
Reach Volunteering gave us a very different example this September.
At the start of the month its trustees announced that the charity would close. This was not a story about a service nobody wanted. Reach said its work remained valuable to charities and community groups. But the funding environment had shifted, funders had narrowed their focus towards particular places, issues and groups, and money for infrastructure and capacity-building services had declined. The trustees looked at realistic alternatives, concluded that there was no sustainable route forward under the existing funding model, and began planning a managed, solvent closure.
Then something unusual happened. A group of nine funders and donors put together a package that would keep Reach running through 2028, and the board reversed its decision.
There is no contradiction in that. Trustees have to decide using the information and the realistic options in front of them. They cannot base a decision to carry on on money they hope somebody might provide, and if substantial new funding does arrive, they should look again in the light of it.
We sometimes assume that a charity which is busy, valued and clearly needed will find its future takes care of itself.
It doesn't.
A charity can do excellent work while its financial model quietly stops working, and more demand does not always fix that. In some organisations it makes things worse. Value and viability are different questions, and trustees need to be able to hold both at once.
Reserves buy time, but they don't fix the problem
Reserves belong in this conversation, but they can also become a distraction.
There is no universally correct number of months' reserves that makes a charity resilient. The Charity Commission doesn't prescribe one, and says the right level depends on the charity's own circumstances, risks and plans. And a healthy-looking figure can hide quite a lot. Some funds may be restricted and unavailable for general running costs. Some of the apparent wealth may be tied up in a building. Future spending may already be committed. Cash in the bank may belong to a project, and be no use for paying the core staff who make that project possible.
Even reserves that are genuinely available only answer half the question. Imagine a charity that costs £40,000 a month to run and holds £240,000 it can truly call its own. Six months of expenditure sounds reassuring. But if it has been losing £20,000 a month for the past year, and nothing in its plans changes that, those reserves are not a cushion. They are a countdown of about twelve months.
The reserves haven't made the organisation sustainable. They have bought the board some time.
What trustees do with that time is the governance question.
Earlier decisions are difficult, and later ones are worse
A charity that spots a likely funding gap twelve months ahead has choices. It can rethink recruitment, talk to funders, renegotiate what it is being asked to deliver, trim costs gradually, change a programme, build unrestricted income, explore shared services or a partnership, or decide deliberately to use some reserves while it changes the underlying model.
If the same board recognises the problem with twelve weeks of cash left, there may still be options. There are simply fewer of them, and some of what remains will damage the very things trustees were trying to protect: staff, services and the people who rely on them.
None of this means boards should become permanently gloomy, modelling every possible catastrophe and refusing to spend in case something goes wrong. Charities exist to use their resources for their purposes, not to build the biggest possible safety net. And early action isn't always right, because a redundancy round or a service cut made too soon can do harm of its own.
The aim is not certainty. It is enough visibility to act.
A small charity doesn't need a finance department to see what is coming
For a smaller charity none of this calls for a dashboard with twenty ratios and a traffic light on everything that moves. That can make things worse, because more information does not automatically produce more understanding. A board needs enough to answer a handful of questions, and to answer them honestly.
How long can we actually keep going on the money genuinely available to us? That means looking past the bank balance and the headline reserves figure. Which funds are unrestricted and available? What cash is due in, and what must go out? When does the position become uncomfortable?
What income are we relying on that isn't secure yet? A grant that has been awarded and an application awaiting a decision are very different things, yet hoped-for income has an alarming habit of appearing in plans as though it were already in the bank. Trustees need to be able to see which is which.
What have we already committed ourselves to? Salaries, leases, contracts, loan repayments and promises to programmes don't vanish because the board wishes they would. A board that believes it can simply cut spending if income falls needs to know how much of that spending can actually be stopped, and how quickly.
What has changed since we agreed the budget, and what does that do to the forecast? This may be the most important of the five. A budget is a plan built on assumptions, and once those assumptions move, comparing actuals with the original figures tells you less and less. If a grant has been lost, a contract delayed, salaries increased or demand has risen, trustees need to see what that means for the rest of the year and beyond. The Commission encourages boards to review forecasts for changes in costs and income so they can step in early.
At what point have we agreed that something needs to change? Perhaps unrestricted cash falls below an agreed level. Perhaps a critical contract hasn't been renewed by a certain date. Perhaps the forecast shows a structural deficit for a second year running. The trigger will differ from charity to charity, and it is sensible practice rather than something the law or the Commission prescribes. What matters is agreeing it before you are in the middle of the difficulty, because it is far easier to name a line when nothing is wrong.
The board doesn't need to predict the future
It is possible to make all of this sound more complicated than it is. It isn't about trustees becoming accountants, and nobody sensible expects a volunteer board to forecast every economic shock or funding decision. It is about understanding the organisation well enough to recognise when something important has changed.
The numbers matter, but so do the assumptions behind them. The budget matters, but so does the latest forecast. Reserves matter, and so does the rate at which they are being used.
Good financial governance gives trustees enough sight of the road ahead to choose another route while there is still time to do it.
The board needs to know before the money runs out. Preferably, long before.
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