This blog , although based on a report from the Charity Commission makes points equally valuable to both charities and SME's. The Commission recently reviewed ten charities who showed signs of being "at risk of financial distress". Five of the charities had an "emphasis of matter" in their auditors report whilst 5 others had one or more of the following risk factors:-
- low levels or no financial reserves
- staff redundancies
- downsizing premises
- negative pension funds
Now you may think that isolvency as a "risk factor" is a bit late and I will probably agree with you! However, the point to illustrate is that you need to act on far earlier warning signs than these which is why, whether you are an SME or a charity trustee, an independent external voice can be of great assistance in these matters. You have to remember that if you are a sole trader, partner, director or charity trustee, governance of any entity involves financial risk and personal liability. Whether it is an independent trustee, a non-executive director, your accountant or even a trusted friend, having someone who can take an overview can be vital. Can you trust yourself not to get bogged down in the detail and recognise that you have problems? Even if you do recognise that you have problems, will you act on them in a timely fashion?
I appreciate that there may be a cost to such advice but compared to the cost of insolvency or personal liability, it is certainly a cost which may well be worth incurring.