How Bare is Your Cupboard?
25 September 2014 at 12:05 pm
The charity sector has a low appetite for risk especially when it comes to leveraging its assets, writes David Crosbie CEO Community Council for Australia.
According to the Australian Bureau of Statistics, the average charity in Australia has around $3 million in assets, while turning over around $2 million in income each year. Even though these are extrapolated averages, they do make it hard to argue that our collective cupboard is bare.
Perhaps more importantly, they raise some fundamental questions:
If the charities sector really does have over $175 billion in assets, how are these assets being used by the 55,000 economically active charities in Australia?
If all these assets were invested at 5 per cent per annum it would generate almost $9 billion and that equates to around $160,000 per charity per year. What do we need to do to unlock the potential of existing assets?
When a business has assets that are not being fully utilised it is often described as having a lazy balance sheet. Take for instance a hypothetical business with a relatively small turnover and large asset – say an old four pump service station on a large inner city corner block of land. Trading may provide a net return of $200,000, but the land might be worth $5 million plus. It is highly likely that anyone who was in the fortunate position of being able to buy the business based on trading figures and returns alone ($2 million or less) would be able to sell off the business assets (land) and make a tidy profit in the process. Businesses with lazy balance sheets are the prime targets for mergers and acquisitions.
The charities sector is not without business acumen and some organisations already assertively leverage assets to further their purpose, but we also hear from leaders in the sector that this can be a difficult process. This is a sector with a low appetite for risk. Charities with their own independent investments and income sources tend to be the exception rather than the rule.
Charities with a lazy balance sheet are unlikely to be a takeover targets, but they may not be doing all they could be doing to better realise their purpose and secure their future.
At CCA we have been working with a number of partners in developing an agenda about the future of the charities and Not for Profit sector – we call it the Owning Our Future project*.
Unlike many much smaller industry sectors, there is no forward plan for the charities and Not for Profit sector. CCA and PwC have hosted a series of CEO Forums over the last 18 months questioning how leaders across the sector see the future for their organisations and the broader sector and what’s needed to better address the issues of performance and sustainability?
It will come as no surprise to anyone that the issue of how the sector uses existing capital and assets emerged as one of the areas for further work.
This issue of better leveraging our assets brought CCA, PwC, Community Sector Banking, Equity Trustees, Social Ventures Australia and Origin Foundation together to roll out a series of eight forums bringing sector leaders together with experts to work through the barriers and opportunities to unlock the potential of sector assets, both at an individual organisational level and at a broader policy level.
CEO led discussion and practical advice from an expert panel will encourage participants in their endeavors to strengthen their organisations as well as building a support network and a CCA report that will be used to inform future national policy.
As a sector we have enjoyed remarkable growth of over 40 per cent across the last six years. The primary source of this growth has been increasing Government income. It is unlikely this growth in Government income will continue at the same rate.
Now is a good time to have a decent look in our cupboards and see if there might be the makings of a decent meal there, even if it is not immediately apparent.
About the Author: David Crosbie is the Chief Executive Officer of the Community Council for Australia (CCA), and a member of the Advisory Board to the Australian Charities and Not-for-profits Commission (ACNC).
*CCA Owning our Future Forums Series 1 on Better using the capital we have in our sector for CEOs and Board Chairs will be held at PwC offices on the following dates:
1. Canberra 16 October
2. Adelaide 17 October
3. Melbourne 22 October
4. Brisbane 28 October
5. Sydney 29 October
6. Sydney 31 October
7. Perth 7 November
8. Melbourne 14 November
To participate or obtain more details please email firstname.lastname@example.org