NFPs expect to break even or lose money

Almost half of Australia’s not-for-profit (NFP) organisations expect only to break even or make a loss over the next three years.

This is a key finding of the 2016 NFP Governance and Performance Study conducted by research firm BaxterLawley on behalf of the Australian Institute of Company Directors (AICD).

More than 1800 directors from a range of NFPs participated in the study, making it the largest survey of NFP governance in Australia.

‘There can be no doubt that NFPs do need to make a profit,’ said John Brogden, AICD’s managing director and CEO.  ‘Profit is the foundation of building the long-term confidence needed for an NFP to achieve its purpose.

‘It’s alarming that some directors are saying the capacity of their organisation to meet their purpose will, in real terms, shrink moving forward. Directors and boards need to consider seriously their roles and drive the cultural change necessary to support the long-term financial strength of their organisations.’

Thirty-one per cent of respondents said their organisations had profit margins of more than six per cent in the past financial year.

‘Many NFPs are not just surviving, but thriving,’ said Mr Brogden.  ‘However, responses to the survey indicate that directors’ understanding of their roles as financial stewards, is highly variable.  NFPs’ making a profit can be a challenging concept for government and the broader community, but without long-term financial strength, the sector will not be able to deliver vital services.’

Other key findings include:

  • The use of performance data to measure organisational success is gaining momentum
  • Rates of mergers have not changed over the past year.  Just over a third of directors (35 per cent) reported that their organisations had discussed a merger in the past 12 months
  • NFP leaders have a negative perception of the sector.  Despite 74 per cent of directors believing their NFP is efficient, only 32 per cent believe this to be true of the sector, and
  • Only 15 per cent of respondents were paid a fee and 70 per cent are spending more than two days a month performing their duties.

The study also highlights the relationship between the NFP sector and governments across Australia and the need for genuine partnerships.  It shows that:

  • More than half of directors believe that federal, state and territory governments are not consistent in their approach to contracting for services
  • Two-thirds want more stability in government policy, and
  • Fifty-five per cent want the administrative burden reduced.

‘We need to have a new conversation with governments about the way they fund and regulate the sector,’ said Mr Brogden.

‘Funding contracts are often short-term and prescriptive.  Most stipulate how funds are to be spent and some even require that NFPs account for any profit they make or, worse, return unspent funds to government.

‘Government is rightly asking for improved governance among NFPs, but (they are) constricting their ability to achieve good governance through archaic funding practices.’

The report is available at aicd.companydirectors.com.au/nfpstudy16.

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