The not-for-profit sector was already under considerable pressure trying to meet demands before the coming of COVID-19, but the impact of the coronavirus triggered both an increase in the need for services and a spike in the cost of delivering those services.
At the same time, economic uncertainty is placing the sector’s already scarce financial resources under greater strain.
Professor David Gilchrist from the University of Western Australia Business School (UWA) has highlighted the fact that the sector has had to invest significant financial resources to continue providing vital services throughout the pandemic.
This includes investing in:
- training and personal protective equipment to ensure the health and safety of staff,
- changing service structures to meet immediate coronavirus prevention priorities, and,
- assisting governments with appropriate and timely responses to health challenges.
Maximising constrained financial resources requires clear visibility of the financial health of the organisation, and that starts with understanding the balance sheet. From effective cash and asset management to identifying financial red flags early, the balance sheet is no longer just the domain of accountants. Instead, it’s a tool that not-for-profit boards and management can use to better navigate unexpected challenges for the benefit of those they serve.
Understanding your balance sheet will help you be mission-ready
Professor Gilchrist says that understanding a not-for-profit organisation’s balance sheet is the best way for boards and management to evaluate the resources they have today and the resources they will need to continue to efficiently and effectively deliver on their mission.
“The balance sheet provides the information needed to help not-for-profits to be mission-ready in the short-, medium- and long-terms,” says Professor Gilchrist.
Over a short-term horizon, this understanding enables not-for-profits to ensure they have the cash to pay staff and bills.
In the medium-term, it allows not-for-profits to invest to develop and modify the organisation, its services structure, and to ensure staff maintain their skills and capacity. An eye on the balance sheet will make it easier to monitor growing financial obligations through provisioning, such as for annual leave.
Longer-term, not-for-profits must have the financial resources to reinvest in the organisation to adopt new technology and replace assets. This is crucial to maintaining operational flexibility in the face of change.
Being able to serve communities well into the future means not-for-profits must focus on generating a surplus to both build their balance sheet and increase their capacity to grow. This will naturally lead groups to consider the mix of services and support they deliver.
Professor Gilchrist says it all comes down to balance, because while some services are profitable, others are costly to provide and may not generate income.
“There has to be a balance to ensure profitable outcomes in the future and to ensure the mission is prioritised—it cannot be all profit and it cannot be all loss”.
Until next time,
Click here to download your copy of the Not-for-Profit Balance Sheet resource, jointly published by CommBank and the University of Western Australia.
Free webinar series: Understanding your balance sheet
Our Community and CommBank are hosting a five-part webinar series to help you make the most of your balance sheet.
The first of the sessions will see Professor David Gilchrist explore:
- Understanding the balance sheet to meet short, medium and long-term needs
- Risks the balance sheet can help you manage
- How the balance sheet can build confidence among donors and stakeholders
- Decision making processes and planning for assets replacement.
Details: 1-1.40pm AEDT, Tuesday, 23 March 2021 | Watch a recording (it's free!)
In the second session, Professor David Gilchrist will build on the Balance Sheet Tool to examine balance sheet budgeting in the short, medium and longer term.
Designed for volunteer directors, CEOs and other executives of not-for-profits and charities, this 40 minute webinar has been developed to assist in identifying key risks, as well as outlining the steps not-for-profits can take in developing effective financial planning frameworks.
Details: 1-1.40pm AEST, Wednesday 21 April 2021 | Register now (it's free!)