Targeted funding critical for NFPs' survival

By Cutcher & Neale Accounting and Financial Services - March 25, 2021

 

The Australian Institute of Company Directors annual NFP Governance and Performance Study published in November 2020 reveals that many organisations’ future was under threat even before the challenges of COVID-19.

While most NFP's expected to make a loss this financial year, almost 40 per cent had made a loss in the previous three years.

AICD managing director and CEO Angus Armour said: ‘Many organisations entered the pandemic already facing serious financial challenges and COVID-19 intensified that pressure, pushing boards and organisations to their limits.

‘Just when demand for NFP services increased, their revenue took a huge hit. The government’s JobKeeper program has been nothing short of a lifeline for many, but significant concerns remain about how organisations will manage when the current scheme ends.

‘These organisations need to be able to continue their vital work through the pandemic and on the other side, but unless issues of funding are addressed, it is likely some will be forced to wind up.

‘Given the vital role these organisations play in our society, targeted assistance is required to ensure [they] survive over the long-term.’

The study highlights the disparity of differing NFP categories to navigate the crisis. Arts, sports, and health NFP's, as well as the aged-care sector see greater impacts than those operating in other areas.

Sources of funding play a significant role, organisations reliant on government funding faring better than those depending on philanthropy and face-to-face fundraising.

Key findings from the study are:

  • In FY20 the number of respondents expecting to make a profit dropped to 48 per cent, with over half expecting to make a loss, break even or come close

  • 55 per cent of survey respondents noted that their organisation was receiving JobKeeper payments. However, more than a third of organisations were ineligible
  • With boards focused on the survival of their organisations, merger activity and discussions on mergers reduced considerably. Only three per cent of directors reported that they were in the midst of a merger, down from five per cent last year
  • One-third of respondents stated that their financial positions were unaffected by COVID-19
  • The onset of COVID-19 brought immediate change, 77 per cent reporting that their organisation significantly changed the way it operated
  • Directors were particularly proud of their NFPs response to COVID-19, with 90 per cent agreeing or strongly agreeing that their organisation had responded well to the crisis
  • When asked to rate the effectiveness of their organisation in achieving its stated purpose, sentiment was higher (94 per cent) than in previous years
  • 87 per cent of directors said they were worried about the Australian economy, and there was a high degree of uncertainty about the future, and
  • 44 per cent of respondents expected client numbers to increase and 45 per cent predicted that service volumes would increase. Twenty-seven per cent expected a decrease in clients.

Download a copy of the study here: https://aicd.companydirectors.com.au/advocacy/research/2020-nfp-governance-andperformance-study

“Sources of funding play a significant role, organisations reliant on government funding faring better than those depending on philanthropy and face-to-face fundraising.”

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