As the impact of COVID-19 spreads across Australia, the resilience of social sector organisations will be tested. The full impact of this pandemic on organisations is still unknown but what we do know is that the well-being of our communities, now and into the future, is dependent on social sector organisations surviving, and then thriving. 

Effectively managing cash flows during this tumultuous time will be critical in ensuring social sector organisations survive and thrive. Leaders of social sector organisations, both Executive and Board, need to ensure that this is an integral element of their organisation’s overall COVID-19 risk assessment and action planning, in order to help to secure the financial sustainability of their organisation.  

Leaders of social sector organisations, Executive and Board, need to spend time assessing the following two questions:

1. How much of my cash flow is at risk? 

In the face of COVID-19, the question to reflect on as leaders is: What percentage of my total revenue is at risk and how can we mitigate this risk?  Some of the early impacts we are seeing include: Community service providers are being impacted by the cessation of face-to-face services and have not transitioned to virtual service delivery; organisations dependent on charitable giving postponing fundraiser events; and organisations reliant on investment assets are anticipating a significant drop in returns. 

2. How strong is my balance sheet? 

In the face of COVID-19, the questions to reflect on as leaders are: Does my reserves policy enable my organisation to operate for 1 month, 3 months, 6 months or more, if we are unable to generate revenue? And, looking forward, do we need to reassess our reserves policy and target at least six months of reserves? Some social sector organisations have strong balance sheets with property and/ or investment assets that can be leveraged to borrow money to offset cash flow risks. However, there are many that are operating out of leased offices, have low cash reserves, and weaker balance sheets, for whom financial sustainability will be a real risk. 

In this article, we unpack insights from the Deloitte Global thought leadership piece, ‘Managing cash flow during a period of crisis’, and apply it to meet the needs of the social sector during the COVID-19 pandemic. 

Social sector organisations currently struggling with cashflow issues, have low cash reserves or are unsure of how long they will be commercially sustainable, should proactively consider the following strategies:

1. External spend reduction

Leaders of social sector organisations should look for opportunities to reduce their external spend commitments including: 

• Encourage the whole organisation to think like a Chief Financial Officer (CFO): As managers respond to the challenges of COVID-19, they will primarily be thinking about maintaining operations and customer service continuity, without giving much attention to financial constraints. Leverage your core finance team/ business partners to support building financial awareness across the whole organisation by implementing some simple rules and guidance. 
• Revisit your variable costs: Reducing your variable costs can immediately reduce your cash outflows and the priority levers leaders should be exploring include imposing travel bans and restricting non-essential meetings (which should already be in place in response to COVID19), imposing hiring freezes, and placing restrictions on discretionary spend like marketing and external training. And ask the question ‘What other variable costs levers can we use to manage our cash flows?’ 
• Labour is typically the most significant cost for social sector organisations so it critical that leaders look at all feasible options to reduce spend in order to delay or avoid layoffs. As a matter of priority, leaders should be looking at the recently announced JobKeeper wage subsidy program and explore whether you meet the eligibility criteria (15% reduction in turnover).  Another option is to reduce casual and agency staff, and re-distribute this work to your permanent workforce. Reviewing your leave policies and encouraging employees to take leave will also help to reduce liabilities on the balance sheet. 
• Convert fixed to variable costs, where possible: In times of uncertainty, it’s generally a good idea to swap fixed costs for variable costs wherever you can – preserving your core business while increasing your flexibility on the fringes. Selling assets and then leasing them back is one way to raise emergency cash. Additionally, if leases are coming up for renewal, consider whether they are now necessary e.g. if you have low occupancy or an increasingly mobile remote workforce. This option may be important to consider for your medium to longer-term cash flow management.
• Revisit capital investment plans: With cash flow forecasts in mind, consider two questions: What capital investments can be postponed or reconsidered? What capital investments are required for the rebound and need to be prioritised? 

2. Focus on Asset efficiency

Routine back-office activities such as paying bills and turning receivables into cash are often taken for granted, however smart organisations in response to COVID-19 are shifting their focus from the income statement to the balance sheet including: 

• Extend payables, intelligently: One way to preserve working capital is to work with suppliers to extend payables and establish a medium-term agreement that both of you can live with. 
• Manage and expedite receivables: Organisations tend to get lax about receivables in a growing economy with low interest rates and where surpluses are being generated. But when managing cash flow becomes vital, it’s worth taking a hard look at how your receivables are being managed. Do you have a revenue claim backlog? Get the basics right, such as timely and accurate invoicing to avoid errors in your billing process that can lead to costly delays in receiving payment. If cash flow is becoming a concern, it is essential that you engage with government funders as early as possible.  Peak bodies will no doubt be putting pressure on government agencies to clear claim backlogs and promote timely invoice payment initiatives such as in New South Wales. 
• Audit payables and receivables transactions: Make sure you’re paying the right amount for the goods and services you procure and collecting the right amount for goods and services you sell. On the payables side, double-check that you’re not overpaying duties and taxes on purchases, and you are taking full advantage of all available discounts. This may be the time to revisit your procurement strategy, policy and practice. Once the audits have been completed, look for longer-term policy and process improvements that can prevent new problems from cropping up. Consider using robotic process automation for your audits, which will reduce staff costs.

Finally, make sure your organisation is maximising government concessions and support to secure your financial sustainability during this critical time including:

• Checking the eligibility criteria for the JobKeeper wage subsidy program, specifically where you have a 15% reduction in turnover. 
• For disability service providers the NDIA have provided some additional support to minimise cash flow risk.
• For NFP and charities with aggregated annual turnover under $50 million, the federal government is providing up to $100,000, with a minimum payment of $20,000 to boost cash flow.

Cash flow management needs to be an integral element of an organisation’s overall COVID-19 risk assessment and action planning. Leaders of social sector organisations facing cash flow risks need to make quick and pragmatic decisions including releasing cash protected by their reserve policies to ensure survival. 

For social sector organisations that have not yet been adversely affected, we recommend that leaders with concerns about COVID-19 proactively evaluate their cash flow requirements, assess potential risks and develop appropriate actions under various scenarios. 

Looking forward, it is critical that leaders should use this as an opportunity to reassess their reserves policy. Targeting at least six-month reserves policy will help social sector organisations build and demonstrate confidence that they can not only survive but be ready to thrive again post COVID-19.

Further information on managing cashflow is available in the Deloitte Global thought leadership piece: ‘Managing cash flow during a period of crisis’.

Need help?
Deloitte Social Impact Consulting

Deloitte Australia’s Social Impact Consulting Practice supports social sector organisations, government agencies and businesses to deliver greater social impact aligned to their vision and mission. 

Our team is passionate about bringing the latest trends in strategy, technology and innovation from adjacent industries and global players to support social sector organisations to be ‘future fit’ in an increasingly complex, disrupted and competitive market.

Should you require any support during this period of uncertainty, please feel free to reach out to either Tharani Jegatheeswaran (Partner – Social Impact Consulting) or Les Hems (Director – Social Impact Consulting).