Tuesday, 4 August 2020

KordaMentha's James Wagg and Sophie Gibbons recently spoke with Philanthropy Australia in their two-part podcast about the challenges facing the not-for-profit sector.

In part one – 'Hope is (unfortunately) not a strategy', James shares his views on the impact of COVID-19 on the not-for-profit sector and how organisations can overcome the current challenges.

“This virus doesn't discriminate between the people that contract it and it doesn't discriminate between the businesses that are impacted by it.”

“We work primarily with the private sector and large government organisations and the impact that they are feeling financially are also felt in the not-for-profit sector.”

Talking from his experience working with companies in distress, James advises directors to look for warning signs and focus on finances.

“Looking for warning signs and giving yourself time and optionality is the most important thing in navigating a distressed environment”

 “With respect to not-for-profits, the key warning signs really do evolve around the future forecast and donation receipts. So for charities that have one or two big events a year at a physical location, they are just not feasible in the current environment. What will happen to those receipts?”

“It's actually forced people to get really creative about how they embrace technology and really forced them to change the way they've done things. It's a good chance to rethink how you can actually drive donations using virtual events or other ways to engage your donors.”

“With respect to costs in an organisation in this environment, you really need to understand exactly how you are spending your cash. It's a scarce resource in good times, but it's a particularly scarce resource in distressed times. So you need to make sure that every dollar that you do spend is going to the right cause and purpose. “

“Our advice to clients is to get back to basics and focus on your finances and your financial forecast and budgets.”

In part 2 ‘Options in uncertain times’, Sophie emphasises the importance of seeking help early.

“It's incredibly important to recognize that really no one knows how long the impacts of COVID-19 will last and that's regardless of sector and industry”

“Not-for-profits are in the business of providing help to others and to our communities. And you know, at this time you really do deserve to ask for some yourself, and there's plenty of avenues you can go down to get that help”

“As a rule of thumb. The earlier you begin the process, the better the chance that you have of a future”

Having worked with many organisations facing distress and needing to address performance issues, Sophie encourages organisations to think ahead and plan for the future.

“In times of uncertainty, what we would encourage not-for-profits to be doing is no matter how small you are as an organisation, run a worst and best case scenario for this financial year. Look at things like how bad could it get in terms of your donation income, be realistic about how bad it could get in terms of a reduction in the number of volunteer hours, an increase in costs or an increase of demand in the sector.”

“In your worst-case scenario really ask the question; Could you still cover your costs? And if the answer is no, then the first thing we would recommend you doing is identify what is essential spending and what could be reduced, or in effect stopped. Recognising that stopping services in a not-for-profit industry is a very difficult decision to make.”

“We're encouraging you to think about long term survival.”

While acknowledging there are differences between the current situations and the Global Financial Crisis, Sophie thinks there are also some similarities.

“One of the real differences is how hard COVID-19 is forecast to impact Australia economically and the fact that there's really no one individual or sector that is immune to the impacts of COVID-19.”

“So that's a little bit different, but the themes really are the same in terms of uncertainty. In times of performance pressure, we would really give the same advice. Cash is king in any organisation, regardless of how big they are, if they are spending more than what is coming in the door, they are going to find themselves very quickly in trouble.”

Commenting on the role of insolvencies and seeking professional help, Sophie suggests:

“Historically, there has been a very negative connotation around insolvency in Australia.”

“However, in difficult times, it tends to bring change, it diverts scarce resources to their highest and most productive use.”

“What we can say is, is as individuals and organizations, you stand a much better chance of keeping your reputation if you limit the exposure to creditors and communities and act early.”

“What tends to exacerbate situations is organisations and individuals who refuse to accept the challenging situation and what that ends up doing is actually magnify the impact that any insolvency or time of distress can create.”

During this time Sophie and James encourage not-for-profits in the same way they are advising the for-profit sector: Act now.  Hope and chance are unfortunately not going to be enough to ensure survival.   

Listen to the full podcast here.