Swift action is key to turning struggling not for profits around

Mitch Griffiths, from turnaround and insolvency firm Rapsey Griffiths, has seen first-hand the financial struggles not for profits face. But he says it’s possible to turn things around if you know the warning signs and take swift action.

Rapsey Griffiths has just released a turnaround and insolvency prevention guide specifically for the not-for-profit sector, a 101 guide for directors, CEOs and board or committee members of charities and not for profits. Below is a preview of the ebook which outlines initial steps to help your not for profit weather the current economic storm. 

How is your not for profit faring financially right now? If you’re struggling, you’re not alone – the social good landscape is notoriously tough and COVID-19 has only made things tougher.  

On top of the usual funding shortages and paperwork and stakeholder demands, fewer people are in a position to give and more people are in need of support.

Unfortunately, many NFPs experiencing financial difficulties leave it too late before seeking help. In some cases, they have their eye on their mission rather than their finances. In others, they’re simply juggling too many operational balls or are not ready to accept the situation. 

None of these scenarios are good. Keeping your financial radar fully tuned at all times is critical. You need to be able to identify the warning signs of insolvency – and take swift action when you see them. The quicker you act, the better the outcome. 

Identifying the warning signs 

There are several early warning signs you should be looking out for that can indicate financial trouble for your NFP. Some of the most obvious include cash flow shortages, dragging accounts payable and an increasing inability to meet your tax and super obligations.

Other less obvious indicators include stagnant growth, debt dependence, runaway expenses, and a lack of competitiveness or responsiveness.

These early warning signs fall into stage two and stage three of what is known as the “demise curve” – a graphic illustration that plots the degrees of corporate financial distress.

As demonstrated by the curve, if underperformance and distress aren’t promptly dealt with, your situation will only go downhill. Worst case, your NFP can fall off into insolvency – not a good situation for you or the people and communities you service.  

As soon as you identify any of these warning signs, there are several first steps you should take. These include thoroughly investigating your financial difficulties and making sure you’re keeping accurate records and staying informed of your financial situation. 

You should also seek help from a qualified advisor, such as an external accountant. They’ll be able to determine a clearer picture of where the NFP is at financially. 

Be proactive and seek professional help

If your NFP is showing signs of distress, as well as speaking to an accountant, it’s also a good idea to call in an independent turnaround and insolvency expert. 

Turnaround experts aren’t just there for when a crisis hits. Their role is actually to help you avert a crisis. It’s never too early to seek professional advice. By bringing a turnaround expert into your discussions early, they can workshop the best solutions and outcomes for your NFP and get you back on track. 

Turnaround experts can also offer advice on the complexities of insolvency law and talk through all options, including accessing “safe harbour” – legal protection against insolvent trading – and assessing whether or not you could benefit from restructuring. 

The three steps of turnaround 

The turnaround process follows three clear steps: an analysis of your situation, developing a turnaround plan and, finally, implementing the plan. 

Step one: Analysing the situation

Is your NFP or charity in imminent danger of failure? Do you have substantial losses but your survival is not yet threatened? Or are you simply in a declining business position?

For your NFP to be deemed viable, you must have adequate available financial resources and sufficient organisational resources. If these requirements are met, a detailed assessment of your strengths and weaknesses should be undertaken and stakeholder communication increased. 

If these requirements aren’t met, a formal insolvency appointment, such as voluntary administration, may be your only option. 

Step two: Developing a strategic turnaround plan

A turnaround plan includes the actions you intend to take to turn your NFP around. Your turnaround plan should consist of specific goals and detailed function areas – and management must be made accountable to deliver on these goals.

The seven key ingredients of a successful turnaround strategy are crisis stabilisation, new leadership, stakeholder focus, strategic focus, organisational change, critical process improvements and financial restructuring.

Importantly, all courses of action should be properly recorded. This includes having a business review document, advice prepared by an expert and a written turnaround plan.

Step three: Implementing the plan

If your NFP has major financial issues but is deemed viable, your turnaround plan must be implemented. Your turnaround plan might involve:

• determining your current labour requirements and making redundancies;
• changing your management team and structure;
• eliminating any unprofitable offerings your NFP provides;
• identifying any surplus assets (non-core assets) and determining if they can be realised in a timely manner;
• identifying assets that can be maximised for further value;
• eliminating any unnecessary capital expenditure or considering and prioritising capital expenditure that maximises return on investment;
• focusing on your cash flow; and
• communicating with your financiers, staff, creditors and members.

Every situation is different, so will require different strategies. You might look at improving efficiencies and rationalising resources – such as by engaging in cost-cutting activities, calling in outstanding debts, and increasing fundraising activity. 

Working in the NFP sector, you may not have physical assets to sell to meet short-term demands, so cash flow management is key.

While the current situation is tough, by identifying the warning signs of financial distress and calling in a turnaround expert, it’s possible to turn your struggling NFP into an enterprise that can not only survive but also thrive.  

For more information about business turnaround and insolvency prevention for the not-for-profit industry download the e-book.

In plain English, this ebook walks through the process of identifying business challenges and their legal and managerial implications, using real-world examples and case studies to outline possible solutions to turnaround your organisation and tackle insolvency.

About the author: Mitch Griffiths is one of the founders of Rapsey Griffiths, turnaround experts that specialise in developing strategies to help not for profits, companies and individuals recover from financial distress. Assisting business across Australia, they’re committed to “turning around” organisations and getting them back on track.