Managing cash flow for social sector organisations in the face of COVID-19 - COVID-19 blog | Deloitte Australia has been saved
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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:
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:
Finally, make sure your organisation is maximising government concessions and support to secure your financial sustainability during this critical time including:
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’.
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).
Tharani leads Deloitte Australia’s Social Impact Consulting Practice, a dedicated practice supporting social sector organisations, government agencies and businesses to deliver greater social impact aligned to their vision and mission. Drawing on over 15 years’ of consulting experience, combined with a deep passion for social change, Tharani has partnered with many organisations (including, disability, homelessness, and community services providers) on their transformation journeys. Her areas of experience include – strategy, growth, operating model design, operational excellence, and governance. She is passionate about bringing the latest trends in strategy, technology and innovation from adjacent industries and globally to support her clients to be ‘future fit’. Tharani is a Director of UNICEF Australia and the Deloitte Foundation, an Ambassador for Good Return, a judge for the Good Design Australia Awards and a passionate advocate for greater corporate and social sector collaboration.
Les is a Principal in Deloitte Australia’s Social Impact Consulting Practice, a dedicated practice supporting social sector organisations, government agencies and businesses to deliver greater social impact. Les has over 30 years’ experience advising NGOs, government and business. His specialties include strategy, organisational performance, operating model design, social innovation, service design, social impact investing, public service reform and social impact measurement. Les supports organisations to achieve greater social impact, operational excellence and commercial sustainability. He works across disability, ageing, family and children, homelessness, justice, regional/remote and First Nation communities. Les has an MBA from Aston Business School and has held senior research positions at UNSW’s Centre for Social Impact, University College London and Johns Hopkins University. Les was a founding member of the Social Impact Measurement Network of Australia.
Rebecca is a Senior Manager in Deloitte’s Finance and Performance consulting practice specializing in back office transformation in public sector, healthcare and human services. She helps her clients develop strategies and operating models and has led large scale shared service and technology implementations.