Commercial considerations for NFPs in the current environment

By Mark Harrison - April 9, 2020

Organisations around the world are experiencing the effects of the global COVID-19 pandemic. Among those most affected are not-for-profit (NFP) organisations.

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In preparation, many organisations have escalated their readiness for the potential next stages, planning for contingencies based on their experiences to date and communicating with their key stakeholders.

Below is a commercially focused incident health check to ensure your organisation is across the commercial risks and issues associated with the current period of significant business disruption. For NFPs that may not have worked through the issues on the checklist, it provides a guide on what matters need to be addressed to best prepare for the months ahead.

Taking stock – commercial considerations for NFPs

The checklist covers a range of commercial considerations, including funding, cost management, working capital, workforce, access to government support, capital reserves management, networks and likeminded organisations, and making an overall assessment of your organisation.

Funding

In a ‘business as usual’ environment, funding is critical for NFPs. In the current environment, assessing your funding sources and proactively reviewing your commitments is key to strategising your organisation’s path forward. A few things to consider include:

  • Distributions and dividends: what is your plan for reduced yields? Ensure you stay in regular contact with your investment adviser to proactively manage changes.
  • Donations: how much of your funding comes from donations? It’s important to continue to communicate with your donors, particularly major donors, to ensure current and future donations pipelines are managed and maintained.
  • Events: do you need to cancel or postpone events, or could you change to an online format instead? Many organisations are leveraging technology to host virtual events, take payment and much more. Consider how these technologies could be deployed to assist your organisation is the short term.
  • Fees for service: can your organisation still perform its regular services for fees (if applicable)? What are your options for alternative service delivery systems? To what extent is your service-based revenue at risk?
  • Grants: do you have certainty about grant funding for the coming months? What grant payments are you expecting this year, and will there be an interruption in these payments? Communicate with grantors now to understand their position.
  • Memberships: How will your funding from memberships be affected? Consider how you’ll retain members and modify your fees and offerings based on the changing environment.

Costs

It’s important to review all your organisation’s expenditure to identify where costs may increase, where savings can be made and what changes you can make to improve your organisation’s ability to continue its important role in the community. A few things to consider include:

  • Contracts with suppliers and landlords: communicate and explore opportunities for changes to cost structures with key suppliers and landlords
  • Cost structures: ensure you review the cost structure of the organisation to match current operational levels.
  • Discretionary spending: examine all discretionary spending and identify potential for efficiencies.
  • Human capital: work with human resource management experts on people matters and rostering changes and assess the impacts on your organisation’s financial position.
  • Increasing costs: identify costs that will increase due to changes in your business’s operations. For example, increased need for technology that will enable employees to effectively work from home.

Working capital

Your working capital will be critical in navigating the coming months, and your organisation would benefit from a plan to proactively manage your capital. A few things to consider include:

  • Assess cash reserves: determine the amount of working capital reserves (cash/receivables/payables) available over the coming months.
  • Cashflow forecasting: develop a 12-week rolling forecast of the organisation’s expected cash position.
  • Cashflow management: plan for and react to your forecast cash position quickly.
  • Debtor management: communicate with debtors and determine a likely receipt date.
  • Drawdown on reserves: examine the organisation’s capacity to draw down on capital reserves. For example, drawing down on investments.
  • Finance facilities: if your organisation has finance facilities, communicate with financiers to manage these cash flows.
  • Supplier management: communicate with suppliers and agree on revised payment terms if they need to be adjusted.

Workforce

Your workforce will likely be one of your biggest considerations as you plan for the months ahead. A few things to consider include:

  • Shared responsibility: ensure CEO(s) can share the burden with the executive so measured decisions about the organisation’s workforce are made.
  • Workforce availability: is there disruption to the availability of your workforce, including volunteers?
  • Workforce continuation: assess your workforce’s ability to continue to fulfil their functions. Can your organisation adjust to help employees continue working? For example, enabling people with the right technology to work remotely.

Government support and stimulus measures

Australia’s federal and state governments have announced a range of support and stimulus measures to help businesses and people through this challenging time. Some of the measures that may best support NFPs are outlined in the following articles:

Capital reserves management

Accessing and managing your organisation’s capital reserves will be critical over the coming months. To ensure your capital reserves are managed and deployed (if applicable) effectively, continually assess whether accessing your capital reserves is a suitable option and seek expert advice. A few things to consider include:

  • Cash flow forecasting: include the potential use of your capital reserves in cash flow planning.
  • Purpose of capital reserves: reassess and confirm the purpose of capital reserves in the current circumstances.
  • Talk to an expert: seek expert advice on portfolio management and whether accessing and using your capital reserves is a suitable option for your organisations.

Networks and likeminded organisations

While many business challenges have emerged recently, it’s also provided an opportunity to industries and organisations to have a greater impact and support each other. Think about the ways your organisation can use your networks and likeminded organisations to continue making a big impact. A few things to consider include:

  • Find organisational partners: reach out to aligned organisations to discuss how you can you assist each other.
  • Share costs and resources: work with organisations to share costs and resources to help each other.
  • Share human resources: consider using the extra human capacity of other organisations or redeploy people in support of another organisation if your organisation is disrupted.

Next steps: form a view and plan your next steps

Working through the above checklist will provide your organisation with a clearer picture of where to focus attention as you plan for the coming months. Continue this process of regular review and proactive planning by keeping the following in mind:

  1. Assess and report on the organisation’s current financial and operational position.
  2. Project expected changes in the financial and operational position for scenarios such as level four societal lock down.
  3. Determine if the organisation requires immediate action, such as a period of significantly reduced trading or placing the organisation into hibernation.
  4. Identify gateways to monitor specific financial and operational criteria that will be an alert to act. For example, minimum reserves or available ‘free cash’ amounts that trigger another course of action.
  5. Assess if your organisation’s position is one that will require an active wind-down, or formal insolvency arrangement, such as voluntary administration or liquidation over the next three to six months?
  6. Ensure officeholders continue to consider their common law and statutory duties as directors.

Pitcher Partners has a team of professionals who specialise in working with not-for-profit organisations. If you’d like to discuss any matter outlined in the checklist above, please contact one of our specialists below.

Read the other pieces in our NFP series:


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