A confidential report from the National Union of Students' short-term savings committee and three-year budget group, seen by The THES , reveals how its financial crisis has arisen, despite a turnover of £3.5 million a year.
A VAT ruling changing its tax status means it will lose about £100,000 a year.
Income from membership fees has fallen. These fees provide the vast bulk of its income and are paid for as a proportion of the block grants given to individual student unions by their parent universities. As higher education institutions tighten their belts, student unions get less.
The report states: "We believe there is a fundamental problem with the financial base of some members and we should now be conservative in our estimations of fee collection. A prudent view would suggest that we budget for uncollected fees of £200,000 against our projections of fee income for the purposes of the estimates, in each of the next three years."
This method of funding causes cashflow problems. Fees are estimated in time for the national conference in spring, before member unions' block grants are agreed. But they do not become due until October, despite the financial year beginning in July.
The NUS also raises external income and has nearly tripled this revenue since 1995. Commercial sponsorship has come from NatWest, Barclaycard and a continuing relationship with Endsleigh Insurance. An internet deal has also surpassed expectations.
"It is this extra income that has allowed expansion of services and put off harder decisions," says the report.
But the remarkable growth has peaked. So the union finds itself with a falling core income that it is unable to claw back from other sources. Meanwhile, its expenditure has been growing by an average of £100,000 a year since the mid-1990s. The rise is mainly attributable to normal inflationary pressures, particularly on staff salaries, which are a large chunk of the NUS's spending.
Some of the recommendations in the suggested rescue plan seem optimistic. For example, it suggests a target of increasing affiliation fee income by £90,000 a year, without explaining how this is to be done.
Others are more practicable; tough affiliation fee collection policies will cut the expected shortfall from £200,000 a year to £100,000, although these run the risk that cash-strapped unions may follow the example of unions such as Imperial College and UMIST, and disaffiliate.
Most contentious are proposed staff changes. NUS wants to avoid compulsory redundancies, but some jobs will have to go, while other staff may be redeployed. These measures have caused outrage on the left of the organisation, and were partly to blame for the headquarters in Holloway Road, London, being occupied.
The NUS's hard left is growing in strength and drew a lot of attention to the sit-in. NUS is now playing down the incident and is to introduce guidelines on appropriate behaviour for National Executive Committee members. But controlling the left may not be the worst of its problems; its key task is to control its spiralling debt.