In 2014, the AICD published its Not For Profit (NFP) Governance Study and also held a series of roundtables which investigated the financial sustainability challenges of the NFP Sector.
In this diverse NFP sector, factors affecting sustainability vary according to the function and funding base of each organisation. Those focused on service delivery, for example, are increasingly likely to have to negotiate the presence of private sector organisations in the operating environment.
The movement of the private sector into areas of service delivery previously regarded as the domain of NFPs, and a fluid regulatory and policy environment, have prompted many NFPs to examine their financial sustainability through a different lens.
At one of the roundtables there was discussion on how directors should, on occasion, use finance and budget discussions to challenge assumptions around their organisations’ purpose, culture and level of innovation.
Structural change, particularly in disability and aged care, but present in varying degrees across the sector, has also underlined the need for NFPs to have robust systems and data. These provide a secure foundation from which directors can make decisions regarding service delivery, sustainability and innovation.
Many NFP boards feel the pressure of operating with paper-thin margins and would like to build up reserves, but face opposition from funders – both donors and government – who want all funds ploughed into service delivery.
Financial sustainability has always been a major consideration for NFP directors. The Study and the roundtable discussion show while the nature of the challenge continues to evolve, NFP directors remain keen to share their experience and knowledge.
In recent decades many NFPs grew substantially as governments outsourced various forms of service delivery. Now, federal and state governments have either, cut back funding, or reduced the rate of growth in funding, for many NFPs. This has forced many NFPs to consider how they are structured, what they do and how they fund what they do. “We all need to invest in strategic thinking to determine what our business is and how we want to be sustainable. We have to be dynamic and clever or else we will just go under,” reflected one director.
For some, the route to sustainability lies in consolidation. The Study shows more than 30 per cent of NFPs have discussed mergers in the past year. In some cases these are being encouraged by government. One roundtable participant who had recently gone through a merger was positive about the benefits but warned that, in the short term at least, such activity had a big impact on resourcing. This director urged others treading a similar path to consider the potential impact on service delivery.
While NFP organisations continue to evolve and mature, there is no doubt that their directors are keeping a sharp eye on both the balance sheet and the cash flow forecasts, as well as meeting the needs of the communities they are working with .