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Charities are facing pressure from every direction.

Costs are rising. Funding is uncertain. Demand is increasing. Cashflow can be tight. And trustees are being asked to make important decisions in circumstances that keep changing.

That is why scenario planning matters.

Scenario planning is not about predicting the future perfectly. It is about helping charity leaders and trustees understand what might happen, what it would mean financially, and what action may be needed.

In other words, it helps charities make better choices before pressure becomes crisis.

Move beyond “are we on budget?”

Budgets are important. They show what trustees have approved and what the charity intends to do.

But a budget is not a forecast of reality.

Things change.

A grant may be delayed. Staff costs may increase. Fundraising income may fall short. Demand may rise. A restricted project may not recover enough overheads. Cash may become tight even if the year-end position looks manageable.

So the board conversation needs to move beyond:

“Are we on budget?”

And towards:

“What would we do if things change?”

That is where scenario planning becomes useful.

A practical scenario planning checklist

Here are the key steps I would suggest.

1. Identify your key assumptions

Start with the assumptions behind your current budget or forecast.

For example:

• Which grants are confirmed?
• Which income is likely but not guaranteed?
• What pay increase has been assumed?
• Are fundraising targets realistic?
• Are projects recovering their full costs?
• What level of demand has been built in?
• Are there any significant timing risks?
• What level of unrestricted reserves is available?

Most charities do not need to model everything. Start with the assumptions that are both uncertain and financially significant.

2. Build three simple scenarios

You do not need dozens of scenarios.

Start with three:

Base case: what now looks most likely.

Downside case: what happens if income is lower, costs are higher, or timing slips.

Severe but plausible case: what happens if one or two major risks happen at the same time.

You may also want an opportunity scenario if the charity is considering new funding, expansion, partnership working or investment.

The aim is to keep the model light enough to update, but meaningful enough to support decisions.

3. Show the impact on cash and free reserves

Do not only look at surplus or deficit.

A charity can look fine on paper and still have a cashflow problem.

For each scenario, trustees should be able to see:

• the year-end surplus or deficit
• the cash low point
• when that low point happens
• the impact on unrestricted reserves
• the impact on free reserves
• whether any restricted funds are creating pressure
• whether designated funds could be used

This helps trustees understand not just whether the charity can balance the budget, but whether it has enough flexibility to manage uncertainty.

4. Use a 13-week cashflow forecast

A 13-week cashflow forecast is one of the most useful early warning tools.

It helps answer:

• When might cash become tight?
• Which receipts are critical?
• Which payments create pressure?
• What happens if funding is delayed?
• What action would buy more time?
• When does this need to come back to the board?

Used well, a 13-week cashflow forecast turns scenario planning from a theoretical exercise into a practical governance tool.

5. Agree trigger points

Trigger points are pre-agreed points for action.

For example:

If unrestricted cash is forecast to fall below a set level within 13 weeks, management will prepare a mitigation plan and bring options to the board.

Triggers might relate to:

• unrestricted cash
• free reserves
• delayed grant payments
• fundraising performance
• project deficits
• debtor days
• funder concentration
• use of designated funds

The benefit of agreeing triggers in advance is that the board is less likely to be forced into rushed decisions later.

6. Link scenarios to board decisions

A scenario pack should not just show numbers.

It should show choices.

For each scenario, ask:

• What would we pause?
• What would we protect?
• What would we reduce?
• What would we invest in?
• Would we approach funders?
• Would we release or redesignate funds?
• Would we reshape services?
• When would trustees need to decide?

If a scenario does not change the conversation, the decision or the timing of action, it probably needs sharpening.

7. Review designated funds properly

Designated funds can be a really useful part of resilience planning.

They can support:

• service continuity
• transformation
• planned investment
• repairs and renewals
• match funding
• wind-down costs
• transition periods

But they should be used deliberately.

Good designation decisions should include:

• a clear purpose
• an evidence-based amount
• a review date
• clear release criteria
• a trustee minute trail

A designation should clarify strategy, not hide weak free reserves.

Trustees need to understand what funds are restricted, what funds are designated, and what is genuinely available as free reserves.

A simple 30-day action plan

If you want to get started, keep it proportionate.

Days 1 to 7: Identify your top five assumptions.

Days 8 to 14: Build three scenarios: base, downside and severe but plausible.

Days 15 to 21: Add a 13-week cashflow stress test.

Days 22 to 30: Take a one-page dashboard to trustees showing the choices, trigger points and possible actions.

Then ask one simple question:

What should we agree now so that we are not forced into rushed decisions later?

Final thought

Scenario planning is not really an accounting exercise.

It is a governance tool.

It helps trustees understand uncertainty, focus on the right risks and make better decisions earlier.

Charities exist to deliver purpose. But purpose comes under pressure when finances are uncertain.

Good financial planning will not remove that uncertainty, but it can make the choices clearer.

And when choices are clearer, boards are better placed to lead with confidence.

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