COVID-19 has cast a temporary shadow over the global economy, which has extended over the not-for-profit (NFP) sector. With higher than usual unemployment, community lockdowns, restrictions on people’s ability to attend events, and social isolation, some NFP organisations are experiencing heightened demand for social services at a time when they have lost significant income.
During these uncertain times, it’s vital that your NFP organisation continues to self-assess and adapt to remain visible, viable and successful. To ensure that your NFP organisation can continue to do the good work it does – especially at this time when people require your support more than ever – we offer these five tips for continued business success.
1. Maintain your focus on good governance
Even as the NFP sector grapples with huge social and economic change, governance boards need to stay diligent and attentive in their regulatory compliance. Changes in individual compliance requirements in response to COVID-19 do not diminish the need of the board to stay vigilant, even as it pursues strategic change. The focus of board members should continue to be ensuring the organisation remains fit-for-purpose and capable of delivering its stated community benefits in a fiscally sustainable and compliant manner.
There are numerous and important responsibilities imposed on not-for-profit directors that are legal requirements. For example, directors have a responsibility to exercise their powers and discharge their duties with due care, skill and diligence; acting in the best interests of the not-for-profit company, and for a proper purpose. Any new strategy developed in response to changing circumstances brought about by COVID-19 must be owned by the board and actioned by the executive.
If the executive and board are not actively managing the strategy, compliance requirements and risks of the organisation, they may require the assistance of an advisor to independently assess or audit policies and procedures. The appointed advisor may then recommend changes, and suggest a new methodology on how to establish a framework for the ongoing improvement in managerial and board performance.
2. Stay on top of your finances and cash flow
Cash flow is the lifeblood of every business and NFP organisations are no exception. A cash shortfall can ruin even the most profitable business, which means the executive team need to be across every aspect of their organisation’s costs, from payroll to finance.
This analysis needs to be timely, detailed, and well targeted. To ensure continued viability, the executive management of NFP organisations need to have a thorough understanding of the following:
- Do you know and understand your cash flow, working capital, and monthly cash burn? How much cash do you need every month to meet your business’s basic running costs?
- What does your liquidity look like, and what debt or equity is available, and from whom, to fill any gaps?
- What are your NFP’s debt obligations? How many debts are falling due in the next six to 12 months, and do you have a bank facility to refinance debt?
- Where is your revenue coming from? Are you solely reliant on government grants?
- Is your sales pipeline adequate and appropriate for this new environment? Are you monitoring likely sales and assessing the probability of delays and cancellations?
- Who owes you money? Are you looking to improve results in this area i.e. reduce debtor days, and thinking about the best ways for customers to pay you?
- Do you understand your legal and compliance obligations, as specified in the terms and conditions of all your agreements and contracts? This includes:
- rental and lease agreements
- creditors and your obligations, and risks associated with preference payments and the implications of the Personal Properties Security Act
- staff costs, awards, human resources policies, and superannuation
- reporting and compliance obligations to Government agencies.
Stimulus packages provided by both state and federal governments have been welcomed as an initiative to preserve many small businesses and the NFP sector. But the funding will stop. When the economy restarts, financiers, landlords and creditors will begin demanding payment. Your NFP business must be fiscally prepared and have available cash to service its outgoings if it is going to survive to the next phase.
3. Know what’s out there and take what’s offered
As COVID-19 restrictions start to ease across Australia, the economic fallout continues to be felt. Reduced fundraising opportunities have cut revenues across the industry, meaning that not-for-profit organisations of all sizes are struggling to meet their operating expenses.
In response, the government and relevant regulatory bodies have made several programs and concessions available. We strongly recommend all eligible not-for-profit organisations understand and access all their entitled support measures. At the federal level in Australia, JobKeeper can help qualifying charities (with at least 15 per cent shortfall in actual GST turnover for Q3 2020 compared to Q3 2019) retain existing staff, while JobMaker offers a way to address both revenue and staffing shortfalls. State and territory governments have also offered concessions to the industry in the form of payroll tax deferrals, land tax relief and targeted grants that should be investigated.
Additionally, the Australian Charities and Not-for-Profits Commission has loosened several compliance requirements for organisations during COVID-19. Importantly, deadlines for reporting have been relaxed, and the regulator has provided guidance for organisations unable to hold physical AGMs. Especially if you are a small organisation, consider taking advantage of these relaxations to address more immediate priorities or development initiatives.
4. Expand your fundraising horizons
With fundraising revenue predicted to fall by up to 30 per cent in 2020, it’s important that NFP organisations continue to adapt and look beyond the norm for income.
Many organisations are still bound by the need to comply with social distancing requirements, limiting their ability to hold large-scale events that would otherwise be their primary sources of funding. In response, some not-for-profits have leveraged technology and digital solutions to make up for missed in-person fundraising opportunities.
The Cancer Council has taken its annual Australia’s Biggest Morning Tea event online for the first time in the event’s 26-year history, raising millions for cancer research. Queensland children’s charity Variety tapped into an experience most of us have shared in isolation with Bad Hair May, inviting supporters to grow out their hair throughout the month before cutting, shaving and styling it into a silly, once-in-a-lifetime look on 29 May, ultimately raising more than $38,000.
Innovation is key here – think carefully about your existing supporters and potential new donors – what are they feeling? How can you reach them, solve a problem, or make a stronger impact? Often digital solutions or hybrid events can be part of the solution. If your organisation does not have access to digital skills, consider investing in skills development today.
5. Move to protect your business now
Despite a current need to adapt, not-for-profit organisations must continue to maintain robust operating conditions. As rates of economic crime continue to increase during COVID-19, it is important for not-for-profits to remain vigilant and to continue to manage their risks even as they innovate.
As charities explore new, digital-first fundraising models to comply with social distancing requirements, it is essential that your organisation remembers the risks associated with these platforms. The direct cost of cyber security incidents for Australian businesses is reported to be up to $29 billion per year – in a moment when protecting your cash flow is your first priority, you cannot afford a breach.
Avoiding this cost and disruption means protecting your business online. Key to this is proper assessment of where you are vulnerable. Internal control reviews (ICRs) can help you better understand your strengths and weaknesses across systems such as payroll, expenditure, revenue and grants, donations and more. Beneficial for all organisations, an ICR can help identify space for improvement in your control systems, ensuring that risk is adequately managed so that you have the confidence needed to act decisively when challenges or opportunities arise. These control measures can be as simple as ensuring that all your records are up to date, allowing fraud and other discrepancies to be detected more rapidly.
There for our community
As we progress through the recovery phase of COVID-19, we expect demand for the important services of not-for-profits – particularly those in mental health, childcare, disability services, and aged care – will only escalate. We want your organisation to be well equipped and ready to assist.
With decades of experience in business advisory, Bentleys can help your organisation make the smart decisions now that will help your business recover and serve well into the future.
Contact your local Bentleys advisor. We are here to help you navigate these challenging times and to help you get to where you want to be.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.