Opinion News

The future of not-for-profit financing

17 Feb 17

2017 promises increasing challenges and opportunity for the not-for-profit sector. Australia’s continued population growth is giving rise to greater demand for community services in the context of the government’s relatively static capacity to invest in services, forcing not-for-profits to rethink their funding and financing. Here’s what we believe lies ahead for the sector in 2017.

Increased emphasis on value for money

Investors in a cause or not-for-profit organisation, whether they be the government, private partners, or individual donors, will be seeking better value for money [1]. This creates an imperative for such not-for-profits to become more efficient through innovative solutions, and to demonstrate the impact of their service through the collection of transparent outcomes-based data. Answering simple questions like, ”What impact do we want to have? How will the world be better off if we succeed? Who will benefit directly and immediately? Who will benefit indirectly or over time? How will we measure real success?” are key to demonstrating value.

Rise of corporate partnerships

The Coalition government’s fourth successive cut [2] to Australia’s aid program has seen the budget slashed by a further $224 million in 2016-17, bringing the total to $3.8 billion. This equals 22 cents for every $100 of national income – the lowest level ever in the nation’s history. Budget cuts like this have, and will continue to plague the not-for-profit sector, forcing organisations to engage in alternative actions to achieve financial sustainability. Given this operating environment, 2017 will see more not-for-profits consider entering partnerships with the private sector to unlock investment approaches fostering the sharing of capital, such as social impact investment and social benefit bonds. Such partnerships will provide increased opportunity for skills and knowledge transfer across sectors, leading to stronger and more productive networks and the creation of social impact for a sustainable future.

Further diversification of funding sources

In recent years, we have seen not-for-profits move towards attracting alternative funding sources [3] and diversifying their income bases. Independence from the political cycle has increased, and is set to continue in 2017. Crowdfunding [4], a form of impact investing, is fast gaining popularity in Australia as a way to raise funds for causes and not-for-profits, with individuals enthusiastic about investing their money into programs or charities with the intention of creating a measurable positive social impact. 2017 will see more not-for-profits tap into this form of participatory funding, increasing their fundraising options and reducing their reliance on government funding and grants. Such funding arrangements come with a range of different requirements and level of risk, which should be understood in order to be addressed and mitigated.

More sophisticated value creation

Creating value for people and the wider world has long been the ultimate goal for not-for-profits. However, only in recent years have we seen significant advancement in the strategic thinking, planning and measurement of value creation. In 2017, more organisations will adopt sophisticated value creation models, to improve their overall performance and deliver more value to the people and communities they serve. Not-for-profits can improve value creation through developing more advanced measurements to quantify all of the unique social outcomes their services and supports achieve. Understanding the full costs of delivering outcomes is also essential in order to gauge the cost per beneficiary, which reveals the true level of value creation. Strengthening value creation can also be a pathway to more sustainable not-for-profit models. To keep ahead of the curve and safeguard their future, today’s organisations need to be on the lookout for new opportunities to create, deliver and measure their impact in the world.

Andrew Cairns | CEO





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