The collapse of 4Children comes just a year after another major charity, Kids Company, went bust due to funding shortages. The key similarity between the two cases appears to be that both organisations were operating without sufficient cash reserves to see them through difficult financial times (Analysis, p8). It is seen as good practice for charities to have sufficient reserves to cover their operating costs for three to six months to allow them to reduce overheads if there is a sudden drop in revenue.
Kids Company operated on a hand-to-mouth existence, and once the government and major donor funding taps were turned off, it quickly collapsed. In 4Children’s case, it was the loss of major contracts to run children’s centres on behalf of local authorities that hit revenue, ate up its reserves and resulted in it going £1.4m into debt.
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