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.

1. Connecting Up Conference 2012
Making Not-for-Profits
Profitable: 20 Tips
www.associations.net.au
www.nfp.net.au

2. Making Not-for-Profits
Profitable: 20 Tips
John Peacock
General Manager
Associations Forum Pty Ltd
& NFP Analysts Pty Ltd
2 May 2012
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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
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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
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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
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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)
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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
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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
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9. “Activity Based Costing”
PROFIT & LOSS ACTIVITY BASED COSTING
INC - Members $200,000 Membership $150,000
INC - Regos $300,000 Conference $200,000
INC - 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
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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
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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
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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
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13. History
1990 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)
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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!
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15. History PLUS Budget
1990 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
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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
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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
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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
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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
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20. Ideal scenario
Management
Members Board sets Plans implements
elect Board & Budget Plans & makes
Profit
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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”
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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
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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
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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
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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
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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
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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
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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
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29. Thank You!
John Peacock
General Manager
Associations Forum Pty Ltd
& NFP Analysts Pty Ltd
2 May 2012
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