Saturday Extra

Should not-for-profit organisations operate like a business, and can they?

Running a non-profit organisation doesn't mean you're not running a business. These organisations rely very much on funding and depend on the dollars—whether it be from government agencies or private contributions—to run their outfits.

But for the sector to grow and to have a future, it needs to understand the financial rhythms and structures of its organisations.

Transcript

Geraldine Doogue: Well should not-for-profit organisations operate like businesses? Can they, indeed?

Running a not-for-profit organisation doesn't mean you're not running a business. These organisations rely very much on funding, and they depend on the dollars, whether it be from government agencies or private contributions to run their outfits.

But for the sector to grow and to have a future, it needs to understand the financial rhythms and structures of their organisations. This was the core message of a conference held this past week in Melbourne, and this coming week in Sydney, called 'Taking Care of Business'. And I'm delighted to welcome one of the men who helped set it up, Michael Traill, who's the Chief Executive Officer of Social Ventures Australia, which is also a not-for-profit. Elaine Henry's joining us too; she's the CEO of one of the largest not-for-profit organisations, the Smith Family. And Julie-Ann Mee, is a researcher from the Queensland University of Technology. Welcome to you all.

All: Thank you Geraldine.

Geraldine Doogue: Now, Elaine, what is essential in running a big not-for-profit organisation like The Smith Family? Is it having a budget, or having a passion to help?

Elaine Henry: Well it's both of those things Geraldine, as you'd imagine. Look, we're no different from any other organisation in some respects, but one of the things that I would say to anyone in a not-for-profit is that you've really got to understand your mission, you've got to be focused, and that drives absolutely everything you do. And then you actually go out and get the income you need to deliver the programs that accord with your mission. Now it's vitally important that we understand our finances, and at any time in a month, you have to understand what are your finances like. Now it's not so much on the expenditure side in our organisations, because you can adjust your costs. It is have we got enough cashflow in the business? Not just for this month, but for the next several months, and for someone like The Smith Family, we've got a commitment for kids over a long time period; it might be ten, 17 years, so the sustainability of your cashflow is very, very important.

Geraldine Doogue: So in other words, if you let those kids down by not having enough money, you really are doubly disadvantaging them aren't you? People who are already disadvantaged.

Elaine Henry: It's exactly that, because if we give them an opportunity and they go for it, and then we say, 'Oh, sorry, we haven't got enough money to do this any more.'

Geraldine Doogue: To finish your education.

Elaine Henry: I mean they will just never trust anyone else in their lives, I would imagine.

Geraldine Doogue: So Michael Traill, you came from the heart of the business world, in fact the heart of the measurers of the corporate world, namely the bankers. Do you need to measure as definitely in the world of not-for-profits, as you do in the CBDs of Australia? Or not?

Michael Traill: I believe you need to make the attempt to do that with clarity and with integrity. Two points: one is I think what Elaine's saying about the absolutely fundamental importance of understanding cash flow and no mission without cash flow and funding is a given, so that has to be in place. On the second issue, I think it is certainly a lot tougher in the non-profit sector to measure impact and outcomes, but I think if that's done consistently and with rigour, the better quality organisations, and The Smith Family certainly does this extremely well, look very clearly at what they're trying to achieve, and what's actually in place to measure the effectiveness of their programs. I don't believe that happens consistently across the sector, and one of the things we feel strongly about in the work that we do, is that it's very important that that should happen, because when that does happen, I think there's better communication to funders, often people from the business world, so that they have a clearer sense of what it is, what the social investment they're making, what sort of impact that achieves. And if that happens, it's good for all.

Geraldine Doogue: Getting back to that business of at a glance, looking at your finances and knowing where you are. Now what have you honestly observed in the not-for-profit sector? Is it one type of person who does that well, and another type of person who actually delivers a big dream?

Michael Traill: We certainly see in the organisations that we support typically a social entrepreneur with a huge amount of passion and energy, and playing a bit of catch-up often, in terms of understanding the funding and the finance. And one of the things for us in running taking care of business is to provide the skills and understanding for these people so that they can make a reality of their passion, so that they at least have a rudimentary understanding of cashflow, of the more strategic approach to revenue. But absolutely what typically drives people in the sector I think is passion first, and then an understanding of funding, hopefully can come later, and that's where we try and help as best we can.

Geraldine Doogue: It's a tricky thing though, isn't it, to pull off, because you wouldn't want to crush that very life force out of the person who wants to fundamentally get in there and move things around on the community chessboard. So do you skill them up so that they have a quick program, you know, a MYOB that means they can do it fast, or do you say, 'No, don't you bother doing that, I'll make sure I've got a good financial officer in your organisation'. It seems to me they're quite important distinctions.

Michael Traill: I think that's a very good question, and those things to us shouldn't be mutually exclusive. A social entrepreneur or a chief executive should have a basic understanding of the funding requirements of the organisation. One of the issues that we see and we feel strongly about is that organisations should be supported and resourced. It may be another person, particularly in an early stage organisation. It might be somebody with a finance background on the board who takes a more hands-on role to ensure that there is support and understanding, the cashflow and the funding requirements. But if that skill's not there, certainly our experience has been it leaves a real hole in the organisation. And to Elaine's point, if there isn't funding in place, it's very hard to achieve mission.

Geraldine Doogue: See Elaine, fundamental to running not-for-profits are managing the volunteers, because this segment isn't, people aren't waged everywhere. Now is that a particular skill that you have to learn?

Elaine Henry: I think it very much is. It was just the topic of a discussion before I came in here, Geraldine, and it is for The Smith Family one of our biggest issues. It was when we were transforming the organisation, and it still is. We have, you might be aware, 25,000 women who make up VIEW Clubs of Australia, which stands for Voice, Interest, and the Education of Women. They're all volunteers of The Smith Family, and trying to get them to change from knitting and making clothes, which is where we came from, into doing literacy and helping kids and parents with their small children and so forth, has been an enormous challenge. And we've learnt from each other. But it is true that when you get people who cross over as I call it, from the commercial world and come into an organisation such as The Smith Family, they have to learn how important it is to build relationships and use skills that they might think they didn't even have, which is the power of persuasion and influence when you're not controlling someone, when someone's not reporting to you.

Geraldine Doogue: And not even being paid.

Elaine Henry: Well that's right, after all these people can just say, 'Thanks very much', and vote with their feet. And of course we don't want that. So this is where passion and mission and vision comes in, and you really sell it in terms of what is happening for them, for their community, and what they're getting out of it, basically.

Geraldine Doogue: And how many of these corporate volunteers, or the people who come in from the corporate world, do that well?

Elaine Henry: Well some of them, look, horses for courses. Some of them are terrific, some of them understand resource limitations, understand the pace of the not-for-profit world being slightly different from theirs, they really want to make a difference, and they will fit in. And they're good relationship people. Well basically, they're people's people. So they're fine. But there are others who it might take quite a while for them to adjust. There's an element -

Geraldine Doogue: A small smile creeping across Michael Traill's face. You've seen some small disasters, have you?

Elaine Henry: Well there are elements of people who come in, and they think we're intellectually challenged in the not-for-profit sector. That this is the only place we can get a job, and of course that's not true at all. And so you have to put up with them being very condescending sometimes, and I just have to say to our staff, 'Well look, we're on a learning trip together, so just see that it's a challenge and you can meet the challenge.'

Geraldine Doogue: That was a small giggle from Julie-Ann Mee, who works at the Centre for Philanthropy and Non Profit Studies at the School of Accountancy. Now you've looked into the way that not-for-profits deliver their service; what caused you to smile then, Julie-Ann?

Julie-Ann Mee: The relationship issue is a huge issue, and one of the things that we've found, especially in the small-to-mediums, that there's no real compliance processes in place in those organisations, and the relationships take a bigger bearing, but in reality and practicality, the compliance issues are taking all their time.

Geraldine Doogue: You mean the compliance issues put in place by outsiders?

Julie-Ann Mee: Yes, by funders and by standard-setters.

Geraldine Doogue: So they are having the creativity crushed out of them, or at least compromised, you're saying?

Julie-Ann Mee: Yes. They have to spend more time on reporting and compliance activities than their real business of making lives better.

Geraldine Doogue: Well are they hanging around to bother, or are they just saying, 'We'll bail out'?

Julie-Ann Mee: Most of them are trying to hang around. And that's making it difficult for them.

Geraldine Doogue: See this is really difficult. I sit on not-for-profits because they haven't chosen to go and work in the CBD, you know, that's not where they want to be, so they go into another area, without the presumption that these are going to be the skills they have to develop. I just wonder what do you see as the answer here, Julie-Ann?

Julie-Ann Mee: Well one of the things that we've done, and we've worked with - I actually attended the conference that Michael was talking about, the taking care of business conference, and one of the things that we've done is develop a tool of a standard chart of accounts and to assist to make some of the compliance activities easier for the not-for-profits, so that they can concentrate on their mission and their relationships, and some of those activities that are from a large corporate perspective, maybe more esoteric than useful.

Geraldine Doogue: So you've developed this - it's an easy, is it? Something that even a dill like me could work out, is it?

Julie-Ann Mee: It's a common set of definitions and accounts that non-profits can use. It's quite simple, it's very practical, and it's a tool that can be applied to any of the accounting systems. So you mentioned before MYOB, so it can be applied to that fairly easily.

Geraldine Doogue: So it's a series of questions that you prompt and the answers then give you -

Julie-Ann Mee: It's actually just a chart of accounts, so a listing of accounts, and in it, it tells you what can and can't be excluded. So it's stand-alone, you don't actually have to make any decisions about what you put in there.

Geraldine Doogue: Is lack of consistency a major problem in this area you've studied?

Julie-Ann Mee: Hugely. There's inconsistency within the not-for-profits themselves, there's inconsistency between the funders, and there's inconsistency between what the standard-setters are looking for. So consistency, this tool actually helps bring some information together that allows people to make some consistent decision, policy-makers for example.

Geraldine Doogue: But costs are costs. You do your list of postage, transport, wages, super, I mean that's the same everywhere isn't it?

Julie-Ann Mee: No.

Geraldine Doogue: Isn't it?

Julie-Ann Mee: No. One of the studies that we did in Queensland recently is we looked at all of the agencies in Queensland, and what we found is there were something like 837 different types of account categories in expenses, of which 113 were related to salaries and wages, and they were definitions, those definitions by the funders, so the government agencies had actually said, Well, salaries, it looks like just plain salaries, or it might be salaries and wages, or it might be salaries and wages and super. So all of those activities had to be redefined. So our standard chart of accounts has actually pulled together all of those definitions, and split them out so that you've got a common set of definitions.

Geraldine Doogue: Does that ring true for you, Michael Traill?

Michael Traill: I think that's a really important point in some of the things that we've seen is this dysfunctionality of information requests from funders, and I have to say particularly in some cases from government, where it actually doesn't relate to the mission, and in the work that we do, particularly in the smaller non-profit thing, with the emerging social enterprises, actually trying to define with clarity and simplicity what it is the organisation's trying to achieve over one year, over two years, over five years, having some consistency of measurement of impact and outcomes, is fundamental. And funders are entitled, and should know whether the funding they're providing is generating results. But sometimes the default setting, it can come from the business world as well, because in many cases we see funders with a business background who are obsessed about the minutiae of expense categorisations, which is coming through in Julie-Ann Mee commentary. It can entirely miss the point.

Geraldine Doogue: And what are some of the questions that government asks which you say are just dysfunctional?

Michael Traill: Well I think it comes back to the categorisation of short-term expense allocations, that's not to say that a non-profit should be other than efficient and accountable in terms of how it allocates funding, but we see case after case of a short-term focus over where the funding goes in a very micro way, and it can miss the point. I mean one of the deep learnings from me, in jumping ship from the business world, is that you must have a long-term perspective in the sector, and that requires patience, but it also requires that with some discipline and consistency you track social outcomes over a year, over three years, over five years, over ten years. And if there's a short-term focus that obsesses about the detail of expenses or unrealistically expects outcomes in the short-term, that's really tough.

Geraldine Doogue: In fact you make the point, Elaine, that discerning between trends and blips, one-off blips, is quite a challenge.

Elaine Henry: Well I think so. For boards in particular, they need to be able to have direct answers when they ask questions. When they see something like a shortfall in income for the monthly, they will normally and naturally have a tendency to say, 'My goodness, we've got a problem'. So as the CEO you have to investigate that and see if it's a timing issue, whether you've got a deal in the pipeline that's going to cover that, you've got to have the explanation for why there's a variance to budget. And I don't think that's a difficulty, if you know your business, you should know that.

Geraldine Doogue: Julie-Ann, have the not-for-profits welcomed your new system? Or is this part of the problem, that the change is rolling over them at such a rate, as everyone talks about lifting the standards of the Australian not-for-profit sector, that they just say 'Bar Lees'?

Julie-Ann Mee: Well in Queensland we've actually rolled the standard chart of accounts out, and the reception has been fantastic. A number of them, both from the government agencies who are funding, and from the not-for-profits themselves. Those that are actually putting it in and using it, as in the not-for-profits, are finding that they're getting some certainty about the sort of information that they have to provide to the government agencies, and they're only having to provide it once.

Geraldine Doogue: So there's an agreed system that everyone buys into, as it were?

Julie-Ann Mee: That's right, yes. And in fact we're talking at the moment to the New South Wales health services departments and Victoria and Western Australia, the Federal government, have all expressed an interest in this as well. So it's actually something that's going through the whole of the government sector and those not-for-profits that have got affiliations in other States, are starting to use it as well.

Geraldine Doogue: A scorecard mentality, Michael, is there any risk again, that it ruins something that is intrinsic and ephemeral but vital, in the not-for-profit sector?

Michael Traill: I think that's true. I think if we lose the passion and the energy and the vision in the not-for-profit world, we lose something substantial. We think there's a balance, we think holding the flame but maintaining some rigour and understanding as you go through so that there's funding in place to achieve the mission is fundamental, and achievable.

Geraldine Doogue: Thank you all very much indeed, a very interesting conversation. Elaine Henry, thank you to you.

Elaine Henry: Thank you, Geraldine.

Geraldine Doogue: Elaine's from The Smith Family. Michael Traill, thank you for organising the conference, and no doubt there'll be details on our website about how people can - can people still come to the Sydney one?

Michael Traill: Absolutely. Some limited places available at the Sydney conference, so check out website, which is socialventures.com.au, we'd be delighted to see you.

Geraldine Doogue: And Julie-Ann Mee, thank you, to you.

Julie-Ann Mee: Thank you Geraldine.

Geraldine Doogue: Julie-Ann's from the Queensland University of Technology, and we'll have all those links on our website that you may like to check out.

Guests

Elaine Henry
CEO
Smith Family
www.smithfamily.com.au

Michael Traill
CEO
Social Ventures
www.socialventures.com.au

Julie-Ann Mee
Centre of Philanthropy and Non Profit Studies
School of Accountancy, QUT
www.bus.qut.edu.au/research/cpns/
olt.qut.edu.au/bus/dyo

Story Researcher and Producer

Dai Le