What exactly is financial resilience? Well, it has been defined as “the ability to access and draw on internal capabilities and appropriate, acceptable and accessible external resources and supports in times of financial adversity”. 1
There are many factors that can cause financial adversity, including (but not limited to) global pandemic-induced Government shutdowns. Regardless of the cause, if your organisation faces financial adversity or even potential adversity, it will need financial resilience to come out the other side alive and well. Continue reading…
If 2020 has taught us anything, it is about the need for organisations – including not for profits – to be more resilient, and able to “pivot” or innovate to ensure continuity in changing external conditions.
Many organisations have either written a business continuity plan for the first time, or have reviewed their existing one for its adequacy to respond to the COVID-19 pandemic and the associated lockdowns and economic crisis that has followed.
Business resilience is about much more than having and testing a business continuity plan, though that is an important element. It’s also about having the right people, robust systems and plans in place to ensure the ongoing sustainability of the organisation. Continue reading…
Some of the financial information contained in the report is worrying, but not surprising. Over the last few years, there has been a steady decline in the number of organisations reporting a profit year on year. However, in 2020, for the first time in four years, more organisations reported a loss (28%) than broke even (23%). For context, AICD conducted this study with a sample of 1,303 participants from the not for profit sector. Continue reading…
How healthy are the finances of your organisation?
Much like a medical health check, a financial health check is something that should be done on a regular basis. A financial health check involves a robust analysis of both your profit and loss and balance statement over a multiyear period, usually three years.
Here’s seven reasons why you should conduct a financial health check.
I asked a robber why he robbed the bank and he told me he did it because that’s where the money is.
The robber knows where to find the money, but do you know where to find the money in the market you are operating in?
Even in the ‘not for profit’ sector, knowing how to generate sufficient revenue is needed to invest in your community social impact, organisational sustainability and growth.
Maybe you think about the environment you are working in as a ‘sector’ instead of a market. But we are all working in a market of sorts: disability providers are competing for a share of the spend of NDIS participants and grant driven businesses are competing against other providers for limited grant funds from governments and other grant funders.
Different risks warrant different risk mitigation strategies. For example, you can put a policy and staff training in place to address the risk of bullying and harassment; but that same strategy would not work on preventing impact to your business from COVID-19.
The process to address one type of risk is not necessarily the appropriate one to address a different type of risk. Risks about future products or services might have significant open ended discussion around the board table; but it would be an inefficient use of the wrong resources for the full Board to discuss identifying and treating all the operational and service delivery risks. This is best left to management and those closer to the level of work being undertaken to go through a ISO31000 style risk process.
When you want to check the financial performance of an organisation, the first and most obvious indicator is profitability. Even in the ‘not for profit’ sector, profit is the key indicator of financial performance – has the organisation operated within its income for this and the most recent years? Has it generated a surplus to reinvest in social impact and organisational sustainability and growth?
It’s easy to lean on profitability as the key indicator of financial success, and sometimes as a proxy for good organisational governance and management. Whilst profitability is the key driver of organisation sustainability, viewed in isolation, it can be a bit of a blunt instrument. The key risk is that overall organisational profitability can hide a lot of issues. Whilst the results for the business as a whole might look great – and they may genuinely be reflective of business performance as a whole – you could have some significant losses hiding behind some hero income streams.
Strategy retreats and planning days that start from a ‘blank sheet of paper’ and focus on ‘blue sky thinking’ can get lost in the optimism of what might be possible, and lose sight of the operational issues present which can hinder that achievement.
Risk is the effect of uncertainty on objectives, and so failing to undertake a critical analysis of internal issues or trends means blindly introducing risk to the strategy process: the risk that the organisation won’t be capable of delivering on its aspirations.
The strategic plan needs to be balanced – forward looking, making the most of the opportunities; but also addressing the internal issues and market constraints that can hold the organisation back.
A strong and effective management system is one of the best methods of risk mitigation in a business – as well as a driver of improved organisational performance.
The management system is made up of the different policies, procedures and forms which describe the way that things should be done in your organisation. It’s about how things are done in the organisation, and documenting it in these ways helps to ensure a consistent approach.
As providers transitioned from state government block funding in to the NDIS, many had to simultaneously comply with the requirements of three different quality frameworks: 1/ legacy funding state government quality accreditations, 2/ NDIS quality and safeguards requirements (supporting participants up to age 64), and 3/ the aged care quality standards often under the Commonwealth Home Support Program (for clients 65 and over).
When setting the budget, one thing you are never going to get perfect is for the actual revenue and expenses to precisely hit the budget that you set. There will always be items that are under budget and others that are over budget.
Inherent in the budgeting process is that there are a myriad of assumptions that you make: utility bills will be the same as last year plus inflation; we have a new service/product which we hope will bring in a certain amount of revenue; we need to invest in some IT work to improve systems which will cost a certain amount.
The budget is a series of guesses – well, educated guesses! You have targets and predictions and know what happened last year, so you can usually make a fairly good ‘guess’, but there will always be overs and unders – as compared with the assumptions.
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Community Business Bureau would like to acknowledge the traditional owners of the lands on which we work and live: the Kaurna, Larrakia, Wann-gal, and Wajuk people, and the Boon Wurrung and Woiwurrung (Wurundjeri) peoples of the Kulin Nation. We recognise their continuing connection to land, waters and culture, and we pay our respects to their Elders past, present and emerging.