Overview

Client: Not for Profit Membership Organisation

Challenge: The organisation was experiencing financial losses as membership income was inadequate to cover the associated running costs.

Opportunity: Provide an understanding of the implications of different strategic decisions by undertaking robust financial modelling.

Outcome: The Board has taken proactive steps to increase membership fees and restructure its asset base to increase the return on investment, improving the organisation’s bottom line.

The brief

This Not for Profit membership organisation has over 8,000 members in its NSW division and over 23,000 members nationally. The organisation receives annual membership fees to cover administration costs and runs large scale events for all members.

The NSW division of the organisation has been experiencing financial loss as income generated from membership fees was not adequately covering the running costs.

To improve the organisation’s financial position, management identified they needed to make significant strategic and structural changes; however, acknowledged they did not have the tools or inhouse resources to produce key financial and operational metrics to
assist and guide the Board.

Simon James, an Advisory partner at HLB Mann Judd Sydney was engaged to assist the organisation’s management team and advise the Board. The firm’s Advisory team has extensive experience in providing strategic advice to Not for Profit clients as well as building financial models to showcase financial and operational metrics.

How HLB Mann Judd helped

The key challenge faced by the organisation was its long-term financial viability. The organisation was forecasting operational losses which required the disposal of assets to fund the deficits. Management knew action had to be taken, however there was resistance from the Board to make changes without understanding the financial implications of any new initiatives.

The key initiatives proposed were:

  1. Changes to the membership cost and fee structure; and
  2. Variations to program content and delivery to increase membership numbers.

HLB’s Advisory team reviewed the benefits members were currently receiving for their membership fees and determined the membership value was significantly higher than the fees being charged. It became clear the organisation’s value proposition was not well understood by its members.

HLB advised that the organisation’s value proposition needed to be clearly defined and communicated to its members. This position ensured that existing and potential new members would quickly understand any changes to fees, structure, program content and
delivery.

As the organisation had a workforce of volunteers the two key profit drivers for the organisation are member numbers and associated membership fees.

HLB determined a financial model was a critical tool that could be used by the organisation to quantify the initiatives being considered. It would also legitimise the need for action and assess which changes would have the greatest impact.

To build the financial model, the Advisory team worked closely with the organisation’s staff and executive group to understand the operations of the organisation through surveys and discussions, given data was limited due to the volunteer workforce. The financial model presented users with outcomes from various scenarios, including how the volunteers spend their time being member facing or on a variety of administrative tasks. The progress of the model was regularly reviewed to ensure it was meeting the needs
of the organisation.

The financial model effectively communicated to the Board that without significant change, the organisation would never achieve a breakeven point.

The model also presented to the Board a rolling two year monthly forecast and a calculation of the cash burn rates. Another modelling scenario presented by HLB, was the proposal to alleviate time spent on administration by the organisation’s volunteers. The model showed that the shift in responsibilities would allow volunteers to focus more time on member engagement, program delivery and recruitment. An added benefit was the new approach enabled the organisation to streamline its compliance and finance.

“We were able to build a robust financial model which allowed management and the board to flex assumptions and be better informed making key strategic decisions.”

Simon James, Advisory partner 

The result

The model was presented the Board along with recommendations for short term and long term actions. The scenarios presented to the Board quantified and strengthened the strategic decisions. Actions taken by management will improve the organisation’s bottom line.