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I think you know the answer.
I'd tell them what I could do for £8k whilst making sure everyone was paid properly - and they can take it or leave it. I'd also write some pretty exacting, punishing terms in the associated contract or statement of work - it sounds like they are disorganised and it's screwing you.
If they flounce you then get the fun job* of finding new business, and they get the horrible job of finding new suppliers.
* kinda
Howard
CYOA
Advice: working with a big client for the final month. They claim they've run out of money and have 8k left for a final project. We pitched our suggestions which were discarded. They suggested something shit and impractical. Costs for the project are at least 6k more like 7+k before you even factor in our in-house time which would be considerable - far more than 1k. Many days of work from multiple people. There is a vague chance we could come away with about 1k, maybe 2k if I underpaid everyone else. Client is increasingly micro managing to the detriment of project (complains about location, about cast etc and then back tracks saying it's fine by which time we've missed availability). For the stress involved in dealing with their nonsense is it worth it and should I just say 'good bye and good luck' and start looking for more business? I have zero confidence the project itself would be worth it for our reel. The only benefit is we could get a photo for Instagram featuring a lot of extras in a room. I've never turned down work before but these guys are driving me fucking nuts.