Author: Tom Smith
Posted: June 14, 2020

Not-for-profits Face Life as a Charity Case

A new report forecasts a dire financial future for the not-for-profit sector as the Covid-19 pandemic prepares to take yet another financial hostage. By Nina Hendy.

It was always financially tough for charities well before lockdown forced the closure of the Bunnings sausage sizzle.

But charities have been dealt a body blow as the global COVID-19 pandemic impacts operations, donations and the level of impact they can bring to their respective communities.

Things were tough well before the pandemic. Pre-existing funding issues, an increasing demand for services due to the rising cost of living, the summer bushfires and subsequent economic downturn meant that charities face an increase in delivery costs, and yet struggle to secure funding.

But legal firm Minter Ellison warns that NFP boards must keep watch on whether the organisation can continue to meet its financial obligations and when they are due.

Charities have even rallied together to highlight the urgent need for a financial lifeline, and those eligible will receive between $20,000 and $100,000 in cash flow boost amounts by lodging their activity statements up to the month or quarter of September 2020.

Australia is by no means alone. The coronavirus pandemic is taking a devastating toll on charitable organisations in the US at a time when the country needs this sector more than ever.

Financial Lifeline

Jenny Woodward is the CFO for YMCA NSW, which employs approximately 2,000 staff across NSW and the ACT. She brought strong commercial and transformational change experience to the youth organisation.

The pandemic has had a major impact on the organisation and unfortunately a number of employees have been stood down or had their hours reduced to cope with the pandemic, she confirms.

YMCA NSW services and sites are an important and much-loved part of communities around the state, and steering them through this financially difficult period has been crucial, she says.

Her team has been navigating business closures, government rulings and JobKeeper payments in a bid to sustain the organisation during this pandemic.

“The reliance on the finance team within charities has become even more critical this year particularly in relation to cashflow management,” she says.

“A big part of the role has been scenario planning, which involves making quick decisions on our biggest financial challenges. Transparency and communication with customers, stakeholders and the community has been crucial,”
Jenny Woodward, CFO The Y (NSW)

Woodward reveals that after 18 months in the role, she is now looking to return to the commercial world and is waiting for the right role to emerge. “It’s not a redundancy situation, the commercial sector is simply a better fit for me,” she says.

Falling Through the Cracks

James Atkins sits on two not-for-profit boards – one in the arts sector and the other in the environmental space. The director of boutique consultancy Vantage Strategy has witnessed the financial crisis hitting charities first-hand.

Casuals employed by charities have fallen through the cracks when it comes to JobKeeper eligibility. Meanwhile, projects have been delayed and cancelled, and there has been a reduction or pause in donations, he says.

“The fact is that the industry has a number of fixed costs, and as the net worth of Australians is impacted by the pandemic, donations have fallen.

“Adhering to government lockdown rules has impacted trade, and many in the not-for-profit sector has mapping out how to get through to the other side of this,” Atkins says.

“We don’t yet know when we can start up again. Relying on government handouts isn’t sustainable. Some areas have also faced a slowdown in tourism due to bushfires before the pandemic, which has impacted income for the entire year,” Atkins says.

A Dire Future

A newly released report reveals the financial impact on Australia’s 16,000 registered charities.

It states that charities also employ one in 10 of our workforce, but that 200,000 jobs in the charity sector could be lost as a result of the Covid-19 crisis.

Published by Social Ventures Australia (SVA) and the Centre for Social Impact (CSI), the report calls for governments to ensure resilience and viability of the charity sector through a range of supports.

Modelling of 20 per cent revenue cuts to the charity sector revealed the extent of the devastation the sector faces:

88% of charities would immediately be making an operating loss.

17% would be at high risk of becoming unviable and closing their doors within six months, even when taking their reserves into account.

The cost-cutting and organisational closures in this scenario would result in more than 200,000 jobs lost as a result of the crisis, as well as reducing the ability of charities to provide services that Australians depend on.

SVA chief executive officer Suzie Riddell says: “Charities provide services that people, communities and government rely on. These are the social glue in our communities. Without thriving charities, our productivity and wellbeing is at risk,” she says.

CSI chief executive Professor Kristy Muir adds that most charities are already run with very tight margins and have little in reserve to fall back on in a crisis, adding that sustainable financial models to support the sector and continue to deliver essential services is required.

“While most charities and not-for-profits are creative, agile and efficient, their funding models aren’t often viable for impact. They’re often cross-subsidising, unable to invest in organisational capacity and innovation and were already on very thin margins before Covid-19,” Professor Muir says.

But every crisis creates an opportunity, and experts say that charities should look for ways to scale-down elements of their service or pivot to provide an entirely new offering to meet a new need in the current conditions.