Leadership insights: Finance
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Warren Cecil is the Grants and Sponsorship Facilitator at Manningham City Council. He has a widespread background in business-to-business sales and marketing, and an in-depth understanding of the Australian funding landscape, with extensive exposure within the corporate, not-for-profit (NFP) and public sectors.
Arthur Papakotsias is CEO of community mental health service Neami National, which provides services in over 40 communities across Australia. He is also Chair of the Mental Health Council of Australia’s Audit and Compliance Committee, and Director of Housing Choices Australia.
Jenny Davidson is the Deputy Executive Officer of YWCA Australia, a role she has held since 2010. She has 15 years’ experience working in the NFP sector in women’s, youth and health organisations, and has managed fundraising and communications teams. Davidson has worked in Australia and Mexico, and completed a Master of Business Administration at Melbourne Business School in 2008.
What are the biggest financing challenges that NFPs face?
Cecil: There are three main challenges that NFPs are constantly faced with in securing funding: time, approach and environment.
The size of an organisation is irrelevant – if it does not have a strategic approach to securing funding it will always be reactive. NFPs are usually designed on service delivery, and even if there is a strategic plan in place, it can still be difficult to execute if time is not dedicated to this as an important operational aspect of the organisation.
Having an understanding of how to approach a potential funder is crucial. Gaining basic information on when and how a funder wants to be contacted is essential in building the foundation of a partnership, regardless of whether you are targeting philanthropic, government or corporate sectors.
Lastly, have an understanding on what is happening around you. This involves gaining a global understanding of the financial environment both locally and internationally, changes in government policy and community trends to giving.
Papakotsias: I believe there are several challenges, but the greatest is the large number of providers tendering for relatively few resources. Most state and federal governments responsible for funding non-government organisations (NGOs) tell me that there are too many NGOs and that the sector has to be rationalised. It appears that larger organisations with increased infrastructure and capacity tend to win more tenders, and smaller organisation struggle to be competitive in a more financially restricted environment. That being said, we need as a sector to be careful, as one should not assume that because an organisation is large, it is therefore effective, or, for that matter, more effective than a smaller organisation.
Davidson: Sustainability is the greatest financial challenge facing the sector, as the term ‘not-for-profit’ implies. The cyclical nature of most funding sources necessitates high levels of staffing, and the sector has long grappled with the short- to medium-term nature of government and philanthropic grants, and fundraising. Corporate partnerships are also generally time-limited and require significant investment of staff time.
The great panacea toted for the sector in recent years has been social enterprises. However, running a business requires a greatly different skill set to delivering community services and can be a significant drain on senior management time.
What advice can you offer NFPs to overcome these challenges?
Cecil: Have a long-term strategic plan for potential funders that paints a picture of where you are and where you are headed. This provides a vehicle for partners and funders to feel like they are contributing to your vision, and also results in a tangible outcome. Even if you do not achieve your desired results, be clear on the impacts that stopped you from getting where you wanted to go. This can then lead into refining your ask and building your case.
Break your large strategic plan into an annual plan where activities are highlighted and everyone in the organisation is aware of what is happening. Also consider having quarterly meetings where specific activities are aligned to potential opportunities. Dissect each activity cost and assess how desirable it is to a potential funder. One activity may have to be fully funded internally, whereas another may be made up of internal funding, a grant and sponsorship.
The last process is to assign tasks. If no one is accountable, nothing will be done!
Papakotsias: Innovate, innovate and then innovate some more. Form effective partnerships with other organisations that share your values and complement your own value proposition. Demonstrate and document the effective outcomes of your work. Evidence is paramount. Alternatively, where viability is clearly at risk, consider joint ventures, mergers, being acquired or acquiring other smaller organisations.
Davidson: The key to financial security is to diversify funding sources. Heavy reliance on any one source puts an organisation in jeopardy when circumstances change. The objective of diversification is to achieve a range so that no single funding source (eg. government grants) represents more than 50 per cent of your income.
Sound financial forecasting can also assist in forestalling downturns in income. Anticipating the end of a cycle of income – such as the conclusion of government contracts – will enable early planning to replace it.
Finally, executives need to accept that organisations need to spend money to make money, in one form or another – even if that goes against the frugality required of NFPs, particularly small ones.
What are your top tips for securing partnerships and government grants?
Cecil: Research your potential funder and gain an insight into why they may be attracted to aligning with your organisation. Companies are now outlining set guidelines and criteria, similar to grant applications, on the amount of information and alignment with their requirements.
Government grants can be more difficult to obtain as you need to exactly match the criteria and timing of fund allocation and acquittal. With all grants make sure that your project clearly aligns to the guidelines and know when to say no! Call the provider if you are unsure. Do not waste time developing an application simply because an opportunity exists.
The best advice l can offer is to capture this information in a spreadsheet where you know the grant, who is delivering it, amount available, and when it usually opens. A funding matrix can assist you in aligning your opportunities with your annual activity planning.
Papakotsias: Demonstrate your organisation is continually improving and implementing the latest evidence-based strategies and services; has access to a database that clearly articulates outcomes; and has a solid reputation as a cohesive, high-performance organisation that prioritises outcomes for consumers and clients of the service.
I believe the critical ingredients for effective partnerships centre around organisational values reflected by consistent behaviours from all staff, and clarity on role, function and value proposition.
Davidson: Warm contact is the best starting point for corporate partnerships, and for securing government funding outside grant rounds. In the highly competitive field of establishing corporation relationships, it is important to utilise any warm contacts that your board members share. Have them come to the first meeting with you if possible, or use their name to get in the door.
Successful corporate partnerships are those that are genuinely mutually beneficial. An alignment of vision and values between a NFP and a corporate partner is ideal. NFPs need to be realistic about what is involved in servicing the relationship – these can be the most time-consuming aspects of any funding source, and costs of staffing the relationship would ideally be accounted for within the funds provided.
When applying for government grants, it’s essential to address the selection criteria, and mirror the language used in the application guidelines. Consider how you can stand out from the crowd and demonstrate the criteria du jour – for example, how the program will be sustainable after the funding period, and how the program impact will be measured.
What are the most innovative developments that have occurred in the NFP financing space in the past year?
Cecil: There have been plenty of discussions around NFPs having their own apps recently, but l think this should be considered complementary to a website. The main issue is that a lot of NFPs are using older and outdated website templates that are not optimised for mobile devices. There are now more mobile devices than people living in Australia – tablets have overtaken fixed PCs for web traffic for the first time, and 80 per cent of web browsing globally now comes from mobile devices. Invest in your core business and promote what you have before worrying about add-ons.
Crowdfunding has to be at the forefront of NFPs in the immediate future. Fundraising platforms are plentiful and an organisation still has to promote the cause or activity to a designated site away from their own website. If a NFP has to divert their supporters away from their own site, it’s best your supporter is not exposed to thousands of other causes. Crowdfunding is currently geared towards the arts, but those that uptake this platform early will make significant benefits before it becomes mainstream. It’s already well utilised and established in the United States and the United Kingdom as a cause-related option, and will naturally assimilate to Australian audiences.
Papakotsias: I think social impact bonds have created some opportunities to interact with business and government in a different way. I also think the National Disability Insurance Scheme will reshape the way services are funded. Introducing a market based-approach will have a profound effect on the community mental health sector, and more broadly across the community services sector.
How can NFPs use internal systems to better manage their finances?
Cecil: All NFPs should be using database software to capture all support received, whether it is monetary or in kind. Know who supports you and how often. This makes engaging with your supporters much easier, and provides clear reports on the segmentation of your database.
There are a number of online accounting software options on the market that are user-friendly and interactive. If you have a small to medium-sized organisation, research what is available. It will save you money and time.
Papakotsias: NFPs that invest in good finance staff and systems are better placed to manage their organisation and deal effectively with funding volatility. It is often an under-resourced part of the organisation but effective payroll, accounts payable and finance teams who can accurately account for the organisation finances in an environment of increasing compliance allows for improved services to emerge.
Davidson: I find many NFPs have financial systems that are overly complicated and lead to double and triple handling of invoices as they pass from staff to managers to finance staff. Simplifying and streamlining can save staff time at each stage.
Sound financial systems are also essential in order to provide transparency on how funds are expended. NFPs need to be answerable for the use of donors’ money in order to maintain relationships with funders and as an essential part of maintaining professionalism in the community sector.
What do NFPs need to consider when deciding which revenue stream is best for them?
Cecil: All NFPs need to be risk adverse. This means outlining a plan with multiple revenue streams. Diversify your income and think of ways to create revenue that is not part of your core business, or assess whether you can package your current product or service for the open market. Consider social ventures as an option – they are costly and time consuming to establish, but once operational should become a potential fallback in leaner times. Pitch for partnerships that support the overall organisation instead of just securing sponsorship for a particular event.
Papakotsias: Each revenue stream has a degree of risk and opportunity, as well as obligations and responsibilities. I think the biggest mistake organisations make is an over-diversification of funding streams, which can lead to mission drift. In a
perfect world, the diversification of funding streams occurs after an analysis of the effect on your mission, vision and the services provided.
Davidson: Seek revenue streams that reinforce your programs and purpose, rather than creating programs to secure new sources of funding. Sometimes this is inevitable in the drive for financial security. However, if your organisation is being lead in a new direction in order to secure funds, be sure to examine how this fits strategically with the organisation as a whole and integrate it with your purpose, or strategically update your purpose to fit your new direction.
Determining what internal expertise is needed is essential when selecting a revenue stream. Staff time might need to be redirected or new expertise sourced. Without sufficient staffing, relationships will not flourish – and relationships are at the heart of much NFP funding, from government contracts to philanthropy. Moving in a new direction, will require an audit of existing skills from the board down. Adequate internal processes also need to be created to ensure that financial rigour and transparency is maintained.
