With ongoing media coverage of the economic downturn largely focusing on for-profit businesses, what happens to not-for-profit organisation’s during such times, and how are they planning to reinvent themselves in the new normal?
As the number of active COVID-19 cases start to reduce and restrictions are gradually eased, all businesses, included NFPs, are now putting their minds to how life will look as we emerge from the pandemic.
The Federal Government’s stimulus packages have been funded through borrowing, but just what is the potential impact of this on NFPs? With an $850 billion debt ceiling, this puts a huge strain on the country in terms of how this will be repaid, when it will be repaid and by whom. NFPs will be particularly affected as repayment of any government debt can only be funded as follows:
- New or increased taxes – new taxes, increased current taxes, or even a redistribution of taxes will invariably lead to either less disposable income of potential donors, or a reduced capacity to donate funds to NFPs
- Reduced expenditure – this could take the form of reduced grant funding to NFPs. The Federal Government recently announced that research showed donations to charities had decreased by 7.1 per cent in 2020 and was predicted to decrease a further 11.9 per cent in 2021 due to the effects of COVID-19. As we come out of the pandemic, and stimulus packages such as JobKeeper and JobSeeker cease, the post-2021 picture may worsen before things improve.
Apart from the generic stimulus packages that have been afforded to all businesses (including NFPs) and some one-off stimulus for NFPs, the Federal Government’s only incentive to promote philanthropic support has been an increase in the minimum distributions that Private and Public Ancillary Funds are required to make each year. Funds that grant at least four per cent more than their minimum annual distribution across the 2020 and 2021 financial years will be eligible for a partial credit which they can use to reduce their minimum distributions in future years. This is incentivising these funds to increase their distributions to charities now – at a time when it’s most needed.
Along with these incentives, there are several NFP organisation’s should be doing now to shore up their financial position, including:
- Get back to financial basics – consider implementing rolling forecasts to replace more conventional static annual budgets. This will allow you to update cash flows on a monthly basis and be nimble when it comes to making decisions going forward
- Review costs – question whether you can reduce costs without affecting service delivery or whether you should have been incurring those costs in the first place
- Bang the drum – now is the time to reinforce your message to your stakeholders. Government funding bodies, other funders, sponsors, general donors, potential bequestors, employees, volunteers, recipients of your services are just some examples of stakeholders who play a vital role in your organisation’s existence. You need to remind them of what your organisation is about to ensure their ongoing support.
This article was published in the 2020 Winter edition of Financial Times.