Charity turns down $1.2m per year.

I'm often shocked at a number of things I see in the corporate world, but getting told, "No Thanks" to a $1.2m innovative revenue stream from a well-known charity, just eats at my curiosity.

So I went in search of understanding.

Then I came across the latest Australian Institute of Company Directors’ NFP Performance and Governance Study 2016 that was supported by Commonwealth Bank.

I think I found the answer, It talks about the charity sector needing to raise the bar.

The report highlights the need for diversified funding models in order to achieve financial sustainability. Makes sense right? Well maybe not.

It goes for all organisations, whether for-profit or not, that a strong balance sheet remains critical to withstand volatile markets. Especially when you are trying to do good in the communities. How else can you continue your work?

Yet there seems to be a concern among NFP Directors that holding too much cash in reserves may result in a reduction of funding (from Government and other sources) and may result in donations being directed to those charities who are in more financial need.

The research shows that there is considerable misunderstanding from charity directors about "Profit" in an NFP context.

In fact, they were so uncomfortable using the word profit, that they changed it to "Surplus"!

One director in the survey said.

"If we made a profit, we would have to give the money back"

To some NFP directors, that mean's having a surplus cash amount not equal to more than 2%-5% of their operating expense. ! Skating pretty close to the wind and not that far above inflation rates.

So there I was, with a brand new socially innovative way for this charity to raise $1.2m per year, every year, for doing actually, very little, and I was turned down.

They gave the reasons of "Our corporate MOU's" in other words, we are not allowed to ask our corporate partners to do any more than what was agreed. Really? That doesn't strike me as very charitable.

I figured that the fear of making too much and losing funding from other sources might be the reason. This behaviour to me is the cause of big charities suffocating the little ones.

Numbers

About two-thirds of NFP directors (64 percent) reported that, on average, their organisation made a profit in the last three years, one in five (20 per cent) reported breaking even and 14 percent reported making a loss.

The outlook for the current financial year is less positive: more than half (59 percent) of surveyed directors reported their organisation will make a profit, a quarter will break even and 17 percent expect to make a loss.

Of the 64 per cent of directors that reported making a profit, a quarter reported profits of less than three percent, an amount that would barely cover inflation 

Question 1 for the boards

"Do you have enough reserves to invest in efficiency improvement and innovation? If not, how will you raise funds?" 

Question 2 for the boards

"Are you actively building a financially strong organisation, or are you expecting to struggle? "

The report states that the NFP sector needs to change and innovate as more community organisations struggle to get to a point of financial sustainability and the large charities should show leadership here.

Move with the times, get rid of your old ways of working, step up and support innovation, which in turn will help those smaller growing charities.

I'm not sure how many charities, large or small are actively looking for sustainable funding models, but at meetmagic.org we have a part of the answer to that problem and welcome discussion with every charity.

Wednesday rant over!

Carl