New inflationary pressures could spell trouble for NFPs as well as businesses, so developing an action plan to tackle them head-on is critical. Now is the time to address key target areas that will strengthen your organisation for a new financial year that could be challenging.
NFP CEOs, CFOs and Boards will understand the importance of carefully managing the organisation’s budget. In many ways, NFPs are impacted by internal and external pressures as the community reigns in spending and donating as cost-of-living pressures continue to bite. At the same time, for many NFPs and charities, the demand for their services continues to increase alongside operational costs.
There are positive steps you can take today to tackle inflation:
Track – Ensuring you regularly review your projected year-end result v budget is key to measuring any inflationary impacts. All good accounting systems will have a standard budget variance report, or you can easily customise it.
Review – Go back to your original business plan. Is what you were trying to achieve still relevant now? The broad goals may be the same, but you will probably need to adjust the plan due to higher inflation levels.
Reforecast – You know that inflation is increasing costs, so if your income will be less than the plan/budget allows, don’t stall; you need to re-forecast now.
Identify loss makers – Review programs/business units. Identify anything losing money that could be cut off. Beware of looking at profit after fixed costs for programs. Remember, if you cut the program, another program has to bear that cost now.
Trim excesses – Undertake a more detailed analysis of costs, starting with the staffing/organisation chart. Is there anything you could do without?
Explore cost savers – Look for grants, and NFP discounts offered.
Stay connected – Use your network to keep up with what’s happening in the NFP sector and get some moral support. Stay connected with the business community to help you identify upcoming threats and opportunities. Utilise your management team and board network. Board members probably have experience with the longer cycles of the Australian economy, including the 1970s when average annualised inflation was 10.5%, and can help broaden your financial perspective.
What have you learnt?
You should have acquired greater knowledge of and confidence in the organisation’s resilience by working out the action plan. It will put you in a better position to identify milestones/triggers and the best actions to take if the cycle of rising inflation continues.
Do you need more forecasting/monitoring of regular cash flow? Outsource to an accounts service if you don’t have time or are afraid, you’ll miss something, good or bad. The right accountants will have more experience and knowledge of the NFP sector.
The good news
It’s easier to respond to an event that you are prepared for it. Book a free 30-minute consultation with one of Next Dimension Accounting’s experienced team today to discuss how we can help you navigate the bumpy financial waters ahead.