I referred in my last column to the challenges facing the NFP Sector regarding uncertainty of funding and the ensuing implications. This issue continues to be of great concern for the sector and following on from the briefing held by AICD in late February, here are some more tips for organisations facing this predicament.
While many of the tips listed below refer to the NFP sector, many will also be just as relevant for the private sector.
Understand your financial position
While it seems blindingly obvious, it is imperative that directors (and executives) really understand what their financial position is and what the possible ramifications are.
For example, an organisation may have a very healthy bank balance, however these funds may be “tied” to particular government grants or other “donor restricted” funds. In such instances, the traditional ratios that directors usually employ may be unsuitable.
Similarly, directors should have a very good understanding of the full extent of the liabilities they may face in the event of needing to wind-up the NFP. Have the full liabilities surrounding staff been brought to account? What leases are in place, and what is their value? Are all government grants fully acquitted or what value may need to be handed back if the organisation is wound up?
Preferably this analysis is done well in advance of the looming difficulties, however this is often not the case. In what is often referred to as the “Zone of Insolvency”, directors and officers should pay particular attention to the potential financial impact of any decisions they make on behalf of the organisation.
Many organisations should look at broadening funding sources. Ideally, this should be done earlier rather than later, however it is never too late to investigate potential funding which may have less “strings attached”.
Increasingly, mergers are being viewed as being a potential saviour for organisations facing this uncertainty. While such merger discussions are becoming far more common, boards need to understand the full implications of such changes. The cultural challenges of mergers are often greater than anyone ever expects, so those considering mergers need to have their eyes wide open.
The final suggestion is to ensure that organisations remain true to their mission. There may be times when an organisation should try to do everything possible to survive. However there may also be times when an organisation would be better to “get out of the way” and let other organisations provide the service instead.
For more information on this important topic visit the NFP Resource Centre on AICD’s website: http://www.companydirectors.com.au/