Connecting Up Conference 2012Making Not-for-Profits Profitable: 20 Tips    www.associations.net.au       www.nfp.net.au
Making Not-for-Profits          Profitable: 20 TipsJohn PeacockGeneral ManagerAssociations Forum Pty Ltd& NFP Analysts Pty...
Associations Forum Pty Ltd• Associations Forum Pty Ltd is a commercial user  group for not-for-profit organisations, with ...
NFP Analysts Pty Ltd• NFP Analysts Pty Ltd is a specialist consultancy for  associations and charities, assisting Boards a...
1. Not-for-Profit is misleading• The term “not-for-profit” is a misnomer• We are “not-for-loss” as well• USA term “nonprof...
2. Understand accounting basics• Balance Sheet is a “financial snapshot of the  organisation at a point in time”• The form...
3. Good accounting systems•   You must have good accounting systems!•   Use accounting software like MYOB•   Know how to u...
4. Use “Activity Based Costing”• Use Activity Based Costing (“cost centres”)• It is an extra - sometimes better – look at ...
“Activity Based Costing”PROFIT & LOSS                  ACTIVITY BASED   COSTINGINC - Members     $200,000     Membership  ...
5. Increase Income• It is easier for associations to make profit than  charities• Fundraising from public & philanthropy• ...
6. Reduce expenses• Start with “activity based costing”• Reduce expenses in areas that are not generating  income or are l...
7. Show financial history• This is a reality check and puts the current situation  in context• What was our equity in 1990...
History1990    1995     2000    2005    2010    2011    2012                                                 Proj’n$500K  ...
8. Put emphasis on the Budget• Giving credit to Governments of all political  persuasions, they pay attention to the Budge...
History PLUS Budget1990    1995     2000    2005    2010    2011    2012     2013                                         ...
9. Restructure if necessary•   Look at your structure•   Are you too small?•   Should you merge?•   External perspectives ...
10. Culture that “profit is good”• Need a governance and management culture  of needing “appropriate profitability”• Need ...
11. Healthy finances = ability to risk• Get financially comfortable with a stable equity to  enable some risks to be taken...
12. Have a CEO to make profit• Generalisation: volunteers won’t make profit,  but the right CEO may make profit• Associati...
Ideal scenario                                    ManagementMembers         Board sets Plans     implementselect Board    ...
13. CEO to appoint profit-making staff• Put on sales and staff who are capable of  increasing profitability• Yet be wary o...
14. Have the right Directors•   The right Board Directors•   External directors can change the focus•   No micromanagement...
15. Replace Treasurer with        Finance Sub-Committee• Finances are too important to entrust to one  person• Having a Tr...
16. Membership income• All entities need membership beyond the  Board or else the Board will report to itself• Association...
17. Education & Conference income• Associations are naturally positioned to  provide education and training• Small events ...
18. Exhibition income• Some associations have developed Exhibitions to  bring together buyers and sellers• Exhibitions can...
19. Commercial ventures &            Government grants• Find out what your stakeholders want• Sell services to them, by th...
20. Utilise technology• Technology offers great opportunities• Internet sales and donations are obvious income sources• Pr...
Thank You!John PeacockGeneral ManagerAssociations Forum Pty Ltd& NFP Analysts Pty Ltd2 May 2012                           ...
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#CU12: Making not-for-profits profitable - John Peacock at Connecting Up 2012

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Charities, community groups and associations cannot distribute dividends to members, but the term not-for-profit is actually a misnomer. John's session will cover the various ways an entity that wishes to make profits and build up reserves should approach this goal.

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#CU12: Making not-for-profits profitable - John Peacock at Connecting Up 2012

  1. 1. Connecting Up Conference 2012Making Not-for-Profits Profitable: 20 Tips www.associations.net.au www.nfp.net.au
  2. 2. Making Not-for-Profits Profitable: 20 TipsJohn PeacockGeneral ManagerAssociations Forum Pty Ltd& NFP Analysts Pty Ltd2 May 2012 2
  3. 3. Associations Forum Pty Ltd• Associations Forum Pty Ltd is a commercial user group for not-for-profit organisations, with 450+ associations & charities as members.• Associations Forum provides opportunities for not- for-profit organisations to share knowledge and experience.• Our members include associations, sporting groups, charities and special cause groups.• AF National Conference: 25-26 July 2012 at BCEC 3
  4. 4. NFP Analysts Pty Ltd• NFP Analysts Pty Ltd is a specialist consultancy for associations and charities, assisting Boards and management on structural, governance, operations, financial and marketing projects.• NFP Analysts comprises five expert consultants who have a range and depth of experience working for and in associations and charities.• Governance, Planning, Restructures, Membership 4
  5. 5. 1. Not-for-Profit is misleading• The term “not-for-profit” is a misnomer• We are “not-for-loss” as well• USA term “nonprofit” is worse• Associations & charities can and must make profits (sometimes called surpluses)• There can be no distribution or dividend to members as members 5
  6. 6. 2. Understand accounting basics• Balance Sheet is a “financial snapshot of the organisation at a point in time”• The formula is Assets less Liabilities = Equity• Equity means “what we are worth”• Simplified, equity gets accumulated by adding up all the profits over the years• Profit and (“or”) Loss Statement shows Income less Expenditure = Profit (or Loss) 6
  7. 7. 3. Good accounting systems• You must have good accounting systems!• Use accounting software like MYOB• Know how to use your accounting software!• Get clear and reconciled reports out on time• Employ appropriate staff: bookkeeper to enter data; contractor to help with tricky transactions; external auditor to verify 7
  8. 8. 4. Use “Activity Based Costing”• Use Activity Based Costing (“cost centres”)• It is an extra - sometimes better – look at $’s• Regular P&Ls look at the TYPE of income or expenditure• Activity based costing looks at the REASONS the money has been earned or spent• Salaries need to be allocated to activities 8
  9. 9. “Activity Based Costing”PROFIT & LOSS ACTIVITY BASED COSTINGINC - Members $200,000 Membership $150,000INC - Regos $300,000 Conference $200,000INC - Corporate $100,000 Magazine ($150,000)EXP - Salaries ($200,000) Board ($50,000)EXP - Catering ($100,000) Admin ($100,000)EXP - Printing ($250,000)PROFIT $50,000 PROFIT $50,000 9
  10. 10. 5. Increase Income• It is easier for associations to make profit than charities• Fundraising from public & philanthropy• Government grants• Membership income• Registration income from conferences, etc• Exhibitions• Commercial products & services 10
  11. 11. 6. Reduce expenses• Start with “activity based costing”• Reduce expenses in areas that are not generating income or are less important activities• Transition of Board and to a new CEO should lead to a review• “Fresh set of eyes” will question expenses others take for granted• Ensure money spent on staff is spent wisely: it is usually the biggest expenditure 11
  12. 12. 7. Show financial history• This is a reality check and puts the current situation in context• What was our equity in 1990?• Equity every year since 2000 should be known and stated every AGM• Some Boards are stuck in the past• Including levels of Income over the years is useful as well, and profit figures over the years 12
  13. 13. History1990 1995 2000 2005 2010 2011 2012 Proj’n$500K $700K $1.0M $2.0M $3.0M $3.2M $3.5M Equity$1.0M $1.5M $2.0M $2.2M $3.0M $3.3M $3.5M Income$50K ($30K) $80K $100K $200K $200K $300 Profit/( Loss) 13
  14. 14. 8. Put emphasis on the Budget• Giving credit to Governments of all political persuasions, they pay attention to the Budgets• Start with annual Strategic Planning Day• Develop “activity based costing” budget from Plans• Make it clear what the budget is and don’t change the original budget figure, or budgets will be ignored• Yes, projections should be made throughout the year to avoid unpleasant surprises• Budgets are your profitability plan! 14
  15. 15. History PLUS Budget1990 1995 2000 2005 2010 2011 2012 2013 Proj’n Budget$500K $700K $1.0M $2.0M $3.0M $3.2M $3.5M $3.8M$1.0M $1.5M $2.0M $2.2M $3.0M $3.3M $3.5M $4.0$50K ($30K) $80K $100K $200K $200K $300K $300K 15
  16. 16. 9. Restructure if necessary• Look at your structure• Are you too small?• Should you merge?• External perspectives will assist your direction• But don’t just get one viewpoint for major changes 16
  17. 17. 10. Culture that “profit is good”• Need a governance and management culture of needing “appropriate profitability”• Need an open culture of all the Management & Board understanding the big picture• Do not be put off by nay-sayers who are uncomfortable with profit and reserves• The Board must do what is in the interests of the association or charity 17
  18. 18. 11. Healthy finances = ability to risk• Get financially comfortable with a stable equity to enable some risks to be taken• Associations and charities on the borderline need to focus on survival• Boards are stewards of the association or charity at that time – they are conservative – none wish to see an entity fail on their watch• When equity is sound or better, their mindset will change to opportunities 18
  19. 19. 12. Have a CEO to make profit• Generalisation: volunteers won’t make profit, but the right CEO may make profit• Associations & charities need to invest in the right people• Every CEO will have different skills: some great CEOs acknowledge their weaknesses and bring is appropriate support 19
  20. 20. Ideal scenario ManagementMembers Board sets Plans implementselect Board & Budget Plans & makes Profit 20
  21. 21. 13. CEO to appoint profit-making staff• Put on sales and staff who are capable of increasing profitability• Yet be wary of staff that you really can’t afford• Boards are naturally conservative and they often don’t see the day-to-day reasons why• CEOs need to say “to achieve the Mission and the Plan, I need these resources and we will make $X profit” 21
  22. 22. 14. Have the right Directors• The right Board Directors• External directors can change the focus• No micromanagement• Start with them not signing cheques• Have protocols on authorisation and limits 22
  23. 23. 15. Replace Treasurer with Finance Sub-Committee• Finances are too important to entrust to one person• Having a Treasurer means some Directors switch off as they trust their volunteer colleague• Replace Treasurer with Audit/Finance/Risk sub-committee with minimum of 3• Include non-Directors on this sub-committee 23
  24. 24. 16. Membership income• All entities need membership beyond the Board or else the Board will report to itself• Associations are fortunate to be able to charge membership due to profession, etc• Charities tend to charge a token membership only• Associations must charge what they are worth• Credentials (meal-ticket) are profitable 24
  25. 25. 17. Education & Conference income• Associations are naturally positioned to provide education and training• Small events around Australia are popular• Bigger events make the profit 25
  26. 26. 18. Exhibition income• Some associations have developed Exhibitions to bring together buyers and sellers• Exhibitions can be profitable because it is easy of buyers and sellers• If associations don’t run exhibitions, commercial operators will do so instead 26
  27. 27. 19. Commercial ventures & Government grants• Find out what your stakeholders want• Sell services to them, by the internet if possible• Possibly best commercial product in Twentieth Century = Insurance products (eg NRMA)• Government grants provide income and are core business, but ensure they are profitable, ie that the expenditure is not greater than the income 27
  28. 28. 20. Utilise technology• Technology offers great opportunities• Internet sales and donations are obvious income sources• Promotion and services from websites will indirectly increase income• Don’t forget that technology can reduce expenses – creating savings in using technology to reduce expenses, particularly salaries and wages 28
  29. 29. Thank You!John PeacockGeneral ManagerAssociations Forum Pty Ltd& NFP Analysts Pty Ltd2 May 2012 29

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