Good financial and HR health will keep NFPs afloat: experts

Posted on 07 Feb 2024

By Matthew Schulz, journalist, Institute of Community Directors Australia

Not-for-profits are used to navigating tight budgets, but the added pressure of rising inflation and living costs is making a tough job harder for community directors and senior staff.

Australia’s leading not-for-profit thinkers agree that the sector will face funding, resource and staffing constraints in 2024, amid a cost-of-living squeeze that is affecting donations and adding to an insurance premiums price spiral.

Professor David Gilchrist and research fellow Ben Perks of the Centre for Public Value at the University of Western Australia have cast their eyes over the horizon to suggest ways that organisations can survive the current environment from a financial point of view.

They say financial health will be the key to the sustainability of NFPs in the coming years, and they define sustainability as the ability to deliver timely services of the right quantity and quality.

Maintaining good financial health will mean focusing on “addressing the short-term deficits while investing in long-term sustainability” and building capacity to “develop and implement strategic responses”.

According to their analysis, NFPs face financial challenges from:

persistent inflationary pressures
rising interest rates
real reductions in funding
declines in donations and volunteering
increased demands for services.

The Centre for Public Value notes that the cascading impact of inflation will also affect service costs, disposable income, investment values, government funding and endowments.

And it suggests that contracting and indexation aren’t keeping up with the costs of service.

“As a result, the risk of unsustainability is escalating rapidly, thereby increasing the risk ultimately borne by service users”.

Gilchrist and Perks argue that community directors and not-for-profit managers need the right resources and tools and the ability to make “bold operational decision-making concerning revenue diversification and cost structures”.

Achieving that will require clear sight of costs, they said.

“To accurately assess their sustainability capacity and options, Australia’s charitable and not-for-profit sector must fully comprehend their comprehensive cost of service delivery and cost drivers.”

This in turn requires a breakdown of every service type, including:

depreciation
amortisation
estimates for human resources provisions.

“Without this knowledge, the ability to identify key sustainability threats promptly and to respond effectively will be significantly reduced.”

“To accurately assess their sustainability capacity and options, Australia’s charitable and not-for-profit sector must fully comprehend their comprehensive cost of service delivery and cost drivers.”

Professor David Gilchrist, Centre for Public Value.

NFP workforce must be cultivated

In the context of warnings from the sector about funding and workplace law pressures affecting the NFP workforce, Gilchrist and Perks suggested leaders should be putting more effort into long-term workforce development and resourcing.

They said not-for-profits were facing a highly competitive labour market amid “rapidly evolving” skill requirements across all services areas.

They suggested organisations would face continued challenges in attracting, developing, and retaining good talent.

This was particularly true for “financially constrained organisations” that employ workers with precarious roles and limited career opportunities.

Organisations would also struggle where they could not offer competitive salaries, benefits and professional development, or flexible working arrangements.

They suggested that NFPs wanting to recruit and retain good staff – especially high-quality candidates, including volunteer directors – should consider improvements in the following areas: