Are you worried about the credit crunch?

Wondering how your organisation might be affected by the worldwide economic crisis?
We can't pretend to have all the answers but we feel it's worth considering the following

1. Do you have all your eggs in one basket?

And how strong is that basket? If you have significant amounts of cash invested try to spread the risk. Putting half your money somewhere else halves your risk. Do you bank with any of the high street banks? Most analysts seem to agree that the British government will not let any of the big British banks go under, and Wednesday’s announcements are an attempt to encourage interbank lending to start again so it is probably unnecessary to spread your deposits around several banks.

The only safer alternative is to invest directly in Government Bonds (gilts) but these are fixed interest instruments and therefore their capital values fluctuate. However, you might want to consider opening an account with one of the ethical banks who have more of their lending underpinned by deposits but from the general public: however none of these fall in the category of too big to fail.Small charities and companies (as individuals are) are protected by the Financial Services compensations scheme, although currently up to £50,000 only.

2. Do you have any loans/overdrafts?

Review the income streams that underpin your loan repayment: banks are likely to be quicker to foreclose on unpaid loans. Loans are likely to be more expensive and harder to come by. However some third sector lenders are still offering loans eg FutureBuilders, Unity Trust, Triodos.

3. Can you rely on grants to bail you out?

Central government funded? Government is only six months into the three year comprehensive spending review so central government spending is probably protected - for now. Local authorities who have invested in banks (especially of the Icelandic variety!) are very worried right now, and are looking for savings.Charitable grant-making trusts may have less money available and are likely to receive more applications, so competition for their grants will be tougher.

4.What will happen to your earned income?

A good time to revisit your business projections!Income from office rents, room hire, training, cafes and bars, consultancy and many other services could be significantly reduced if local companies go out of business, or people have less money to spend. If you are more expensive even your satisfied customers might move elsewhere. Consider changing your terms of business – higher rent deposits, direct debits and standing orders for regular customers, reduce 30 day payments 21, 14, immediate. Better to be prudent rather than over-optimistic.

5. How will higher unemployment affect you?

Good if looking for new staff, good too if in the business of providing services to the unemployed, so long as the funder will increase funding proportionally. Bad news if it increases pressure on services without more money. We may see an increase in the pool of volunteers as redundant employees use it as a means of getting back into work.

6. Are we heading for high Inflation?

It is not clear what will happen to inflation. Initially inflation will go down as interest rates are forced down in an attempt to get the economy going again, however the traditional route of spending our way out of a recession will quickly lead to high inflation in the longer term. Keep your options open, for example it may be possible to renegotiate a long term contracts if inflation goes above say 5%. When preparing your budget for next year err on the side of caution.

7. Any silver linings in the clouds?

Economic crisis does bring opportunity. There will be increasing need for our services. Public mistrust of the corporate sector could lead to a bigger role for charities and social enterprises. As capital receipts fall local authorities will be more keen to sell/dispose of assets to communities and the fall in property prices shifts the power to the buyer – also building work costs remain more stable and easier to source as other sources of work dry up. Your own suppliers may also be willing to give better deals– so haggle!

8. How will you keep on track?

The management term and the Board should be working together as you plan for the down turn. Don’t sacrifice your mission for a short term gain.

This is the time to stay focused on your mission but take a good hard look at your business risks and opportunities.

PS: we sent all our members copies of our Early Warning Guide earlier this year – if you haven’t used it yet now is a good time to do so.If you need further copies we will send them to you, simply email earlywarning@dta.org.uk. For more information on the Early Warning Guide click here.