COVID-19 – Is there light at the end of the tunnel?

Lucio Di Giallonardo, from HLB Mann Judd Perth, shares some tips on what not for profits should be doing now to future-proof themselves.

As the number of active COVID-19 cases starts to reduce and restrictions begin to be eased, all businesses including NFPs are now putting their minds to how life will look as we emerge from the pandemic.

We know that all government stimulus packages have been funded through borrowings, and as our federal treasurer said just prior to his unfortunate coughing fit recently, “Australians know that there is no money tree. What we spend today must be repaid tomorrow”. 

These few words triggered a number of thoughts in my mind as to the potential effect on NFPs – unfortunately, most of those thoughts were troubling. 

Now that Australia’s debt ceiling has been lifted to $850 billion – thanks to the federal government’s recent $320 billion stimulus package – this puts a huge strain on the country and its citizens in terms of how this will be repaid and by when. NFPs will be particularly affected as repayment of any government debt can only be funded in one of two ways:

• New or increased taxes – whichever way you look at it, any new taxes, increases to current taxes, or even a redistribution of taxes (eg by increasing the GST rate and reducing other taxes), will invariably lead to either less disposable income in the hands 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 announced recently 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. This is significant. As we come out of the pandemic, and stimulus packages such as JobKeeper and JobSeeker stop, the post-2021 picture may get worse before it gets better.

Apart from the generic stimulus packages that have been afforded to all businesses (including NFPs) and some one-off minor stimulus for NFPs, the federal government’s only incentive to promote philanthropic support to date has been the announcement that the minimum distributions that private and public ancillary funds are required to make each year has increased. Funds that grant at least 4 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 encouraging these funds to increase their distributions to charities now – at a time when it’s most needed.

So, with all this in mind, what should NFPs be doing now to future-proof themselves? Here are some tips:

Get back to financial basics

“Cash is king!” Look into implementing rolling forecasts to replace your more conventional static annual budgets. This will allow you to update your cash flows on a monthly basis and be more nimble when it comes to making decisions going forward.

Save for a rainy day

Some would say that the rainy day (or torrential downpour) has already arrived. If your organisation does not have any financial reserves, now is the time to create these, if possible, to counter any future reduction in revenue.

Review costs

There’s nothing like a good pandemic to make everyone focus on 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, more than ever, 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 – these 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.

Look for opportunities

There’s no question that opportunity is borne out of any crisis. Unfortunately, there will be victims. However, opportunities may arise by several NFPs with the same or similar objectives coming together – either through a formal merger or through increased collaboration – to provide a better, more streamlined, or more cost -effective service to their stakeholders.

Review your decision-making

COVID-19 has taught us all that we need to be nimble when it comes to decision-making. It’s all very well to do your research, do your due diligence, make sure that every “i” is dotted and every “t” crossed before making a decision; however if that decision is delayed because of this, it may be too late to avoid the crisis. We need to change our mindset from “ready, aim, fire” to “ready, fire, aim”. In other words, make a quick decision based on the best available information, and then quickly assess the results. If you need to tweak things, then do so. The important point is that you acted quickly and still had time to refine things.