THE EXIT STRATEGY
- THE PRINCIPLE
It is a requirement placed on Trustees of all charities by the Charity Commission that they take appropriate action to remove the Trust from its obligations and liabilities in the event that continuing operation of all or part of its activities become unsustainable.
This ‘exit’ strategy would not be undertaken lightly as it would clearly have some serious implications for the community. However, the facilities have to operate sustainably and if the income derived does not exceed, or does not seem likely to exceed, the Trust’s financial expenditure over a given period of time (in the opinion of the Trustees), then the Trustees will have little option but to act appropriately to avoid creating a deficit position for the Trust.
In this respect each part of the Trust, namely the Community Library, The Old Girls’ School, the Community Publications and any other entity that the Trust may take on in the future is to be treated independently and must remain sustainable in its own right.
2. TYPES OF ‘UNSUSTAINABLE’ OPERATION
The following are just some of the possibilities:
- Major capital expenditure
Significant uninsured capital expenditure requirement, that is not covered by reserves, and it is not possible to generate sufficient funds in a realistic timescale.
The issue here will be that without a realistic and rapid way of securing significant external funding to undertake the capital works, the buildings will become non-operational/ non-viable, failing to generate the revenue required for its upkeep.
b) Income regularly falling below expenditure with little potential/ likelihood of the situation being reversed
In this scenario, the income does not match the expected profile to cover the costs of operation. This could occur either as a lack of community interest, or as a failure of the expected demand. In either case, it will be relatively easy to monitor and assess through regular financial monitoring
c) Failure to attract sufficient, committed volunteers
The successful operation of the Trust, like many other charitable endeavours, will be dependent upon the recruitment of sufficient committed volunteers. Operations would not be viable without volunteers who are able and willing to support us. The baseline financial predictions do not allow for the facilities to be managed all the time by paid staff.
3. DETERMINING ‘SUSTAINABLE’ OPERATION
The Trustees will need to have certain data available to them in order for them to be able to define ongoing sustainability.
The Trustees will have an income and expenditure forecast for 2 years. This is based on ‘conservative’ income forecasts. This data can be updated monthly with ‘actuals’ in place of forecasts (predictions). The number of volunteers recruited and available, alongside feedback from staff, customers and volunteers themselves will help determine the ‘satisfactory’ extent of community volunteering.
The 6 months’ forecasts are based on a number of assumptions and predictions. The timely updating of these forecasts with ‘actuals’ is crucial.
It should also be noted that it lies within the Trustees control to alter/ control certain items of expenditure, in order to address / manage the finances (e.g. not all expenditure items are critical and some are not ‘time crucial’ i.e. they can be moved about to alter the profile of expenditure/ improve the ‘in month deficit’ position and/or the monthly running balance).
4. POSITIVE ACTIONS TO HELP AVOID ‘EXIT’
There are a variety of actions that will help to minimise the potential for/ likelihood of an ‘exit’ becoming necessary. These include:
- Regularly updated financial data
- Detailed assessment of and timely (remedial) action/s on any issues
- Establishing a large opening bank balance (as large as possible) – through fundraising initiatives and grants
- Maximising income
- Building and maintaining reserve funds
- Minimising all non-critical expenditure
- Flexible pricing policies
- Delaying or deferring expenditure where appropriate/ possible
- Robust value for money choices and use of ‘charity’ distributors/suppliers
- Marketing campaigns to encourage usage
- Regular chasing invoices to ensure timely payment
- Maintaining clarity of the difference between income and ‘profit’
- Creative fundraising initiatives
5. ACTIONS IN THE EVENT OF AN ‘EXIT’ BEING AGREED BY TRUSTEES
- ‘Sustainability’ assessment by Trustees.
- Decision by Trustees to enact the appropriate termination clause in building lease.
- Extraordinary General Meeting of the Trust open to members of the Community
- NYCC formally informed that the lease is to be ended (broken’ by the Tenant), giving appropriate notice.
- All unnecessary expenditure ceases (“necessary” = as required by legislation, the lease, Health and Safety requirements). It may be possible to continue to operate for community use during the notice period, but this cannot be guaranteed as expenditure will need to be minimised (albeit some ongoing income may help to defray the base costs).
- The building will revert to the ‘landlord’, NYCC and all community use will cease.
Strategy agreed at Meeting of Trustees held 25th February 2019