Financial Sustainability: Is Your NFP Set Up For the Long Term?

In October 2014, the Australian Institute of Company Directors released the 2014 NFP Governance and Performance Study.To explore the Study results further the AICD hosted a panel discussion to consider the key findings.

Here is an extract from the latest discussion paper Financial sustainability: is your NFP set up for the long term?

Introduction

The Study and roundtable discussion confirmed financial sustainability in one guise or another continues to figure strongly in NFP deliberations. The Study showed that strategy and funding account for the biggest percentage of NFP board time and financial sustainability considerations also loom large in other areas of governance including risk oversight and performance review.

In the 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 financial sustainability through a different lens.

The Melbourne roundtable discussed 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.

Changing shape

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 organisations. 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,” said one director at the roundtable….

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