What will happen to non-profits?

In these uniquely challenging circumstances, how can accountants support non-profits? Patricia Quinn and Paula Nyland tell us that thoughtful and clear-eyed planning is needed to mitigate the challenges facing these organisations.

Stories from the non-profit sector can paint a bleak picture of services threatened, vulnerable people at risk, fundraising decimated, and mature non-profit businesses facing unprecedented challenges to their viability. The emergency €40 million funding package provided by Government for the non-profit sector will go a ways towards buying some much-needed time, allowing these non-commercial businesses to take stock, regroup and renew their operations.

If you look at the thousands of non-profits listed on Benefacts public website, you can see that the sector is highly diverse. At one end, there are heavily staffed health and social care service providers that derive most of their funding from the State in exchange for providing essential services. At the other end, there are thousands of small, local associations and clubs that rely mostly on donations and volunteer effort.

These are uniquely challenging circumstances for non-profits and accountants have an important role to play in supporting them – whether as professional advisors or as voluntary Board members. As analysts of sector data, these are the kinds of situations Benefacts has encountered:

• Dependency on fundraising and donations is high, with almost €0.9 billion reported in the most recent financial statements of all the companies in Benefacts Database of Irish Non-profits. The pandemic has decimated traditional interactive fundraising in its many forms – whether event-driven, church gate collections or calling to homes to sign up to direct debits. Some high-profile campaigns have mitigated this, such as Pieta House, which raised €2 million after a push on social media, but this is only a third of the €6 million raised by last year’s ‘Darkness Into Light’ walk, with no alternative project to fill the €4 million gap. Online fundraising simply does not have the same impact.
• Many non-profits do not hold an adequate level of reserves. A good rule of thumb accepted by some Government funders is 10 weeks of operational expenditure. Sadly, few non-profits enjoy this level of security. In fact, many Government funders actively discourage the holding of reserves, with the result that several non-profits operate a ‘hand-to-mouth’ existence in terms of cash. Although the cost base of larger non-profits reflects the labour-intensive nature of their work, Benefacts analysis shows that in the case of many smaller non-profits (i.e. less than €250,000), non-payroll expenditure amounts to some 70% of their cost base. This means the COVID-19 subsidy will be of limited value.
• The demand for services is higher, and the costs of delivery will increase with the cost of delivering care with social distancing restrictions still active. This will have far-reaching effects in homelessness services, respite, residential care, and many more service areas dominated by non-profits. In the voluntary housing sector, income support payments have helped maintain rent payments but, without a further injection of funding, it will become harder to meet the demand for housing given the likely consequences for the coming recession for the building sector.

Inevitably, the current focus is on the immediate issues, but for the medium-term, thoughtful and clear-eyed planning will be needed. Directors and trustees need to be looking at cash flow projections, potential increases in demand, and commitments to continued government support. Without this, sector leaders are telling us that tough decisions may be needed to cut services as early as Q3 2020.

Although the emergency fund is very welcome, many organisations will need an early commitment of future government funding into 2021 and beyond to maintain essential services. The alternative could be closures, with all the unthinkable consequences for the most vulnerable in our society.  

Patricia Quinn is the Managing Director of Benefacts.

Paula Nyland is the Head of Finance at Benefacts.