Federal Budget Come Down: Ignore Your Funding, Focus On Sustainability

Now that the dust has settled on this year’s Federal Budget it’s time to reflect on what it really means for Not-for-Profits and how the social sector should respond amidst all the changes.

Funding environments are less secure now than they have been for years. Organisations across the health, disability, arts, research, aid and development and education sectors – to name just a few – are now operating in uncertain, even unstable, policy environments.

Well, we say ignore your funding!

No, we are not suggesting you continue with your head in the sand and pray the problem goes away. Rather focus on your financial model and how you can reach a point of sustainability, regardless of funding. Your funding model will naturally follow.

From points on how to design a sustainable business model, to how to strike up rewarding partnerships, we’ve compiled a number of strategies to best respond no matter what your post-federal budget situation is.

Funding cut

The coalition government’s fourth successive cut to Australia’s aid program will see the budget slashed by a further $224 million in 2016-17, bringing the total to $3.8 billion. This represents 22 cents for every $100 of national income – the lowest level ever in the nation’s history. The foreign aid and development sector has now hit back, launching its “fight back” campaign for the federal election.

Spark Strategy Shared ValueNot-for-profits that have had their funding cut should considered partnering with corporates to achieve financial sustainability. Financial sustainability isn’t just about cost reduction and efficiency. It’s also about the top line growth. Partnerships are an avenue to both. This can also offer a practical means of delivering better social outcomes while innovating and improving business and funding models.

Leaders of these not-for-profits must do three things:

  • Identify corporates that authentically align with their values
  • Be courageous. To make a strategic partnership work, an overhaul of your entire business model may be required to achieve the maximum (or any real) benefit. This isn’t a comfortable process. It’s one we’ve gone through ourselves and lead dozens of NFPs through.
  • Unearth and try models of practical, sustainable and enduring impact. Be open to refining the partnership on the go – partnerships can sometimes feel like being part of a start-up, be prepared to try things, fail, tweak, try again.

Less than expected

$100 million has been allocated over three years to domestic and family violence, an amount which executive director of Fair Agenda, Renee Carr said is “devastating and dangerous”. By comparison, the Victorian state budget recently announced they would be committing $572 million over the next two years to family violence.

Not-for-profits whose funding was less than expected should start thinking about shared value initiatives. Shared value is tackling a social problem with business thinking. Creating strategies that achieve both social and economic impact takes the strain and risk out of reduced funding

Leaders in this space need to know:

  • It’s much easier to deliver shared value when you have alignment between your organisation’s mission and vision, and the social issue you’re focusing in on.
  • Being as specific as possible about what issue you are trying to solve makes things go even more smoothly. It’s important to contextualise the problem – who are you going to help and where?
  • Partnering is generally essential. Partner with those who can do something better than you know how to and offer your organisation’s skills where it make the most sense.

New funds

$840 million has been allocated in a youth employment package to help up to 120,000 young people over four years to secure jobs by building employability skills, offering internships and making available wage subsidies to employers.

Sustainable business model Spark Strategy

Not-for-profits who are going to be seeing new funds should take the opportunity to transition their organisation to a sustainable business model. Funding is never certain and organisations need to be wary of becoming reliant on uncertain and unstable money. A sustainable business model will help organisations weather the highs and lows of funding changes. It comes from adopting flexible, adaptive business models, not from preserving and bending existing ones. Sustainability is not a year-to-year proposition, but by its very nature it is a long-term pursuit with short-term actions.

To achieve sustainability on a large scale leaders of not-for-profits can consider:

  • Spin off: This strategy involves developing a new business and separating it as a commercial, revenue generating entity.
  • Partnerships: A partnership with a complimentary NFP is often a shortcut to social impact but there are dozens of forms a partnership can take.
  • Mergers & Acquisitions if you identify there are insufficient resources to achieve long-term sustainability.

Uncertain funding

Being labelled as a “redesign”, funding for the Department of Social Services Strengthening Communities program is set to shrink from $40.5 million to $28.4 million over the next four years. Brett Williamson OAM, CEO of Volunteering Australia says “at this stage we have no idea what the Strengthening Communities redesign means for the volunteering sector” however organisations are “rightfully concerned”.

Not-for-profits with uncertain funding should revisit their strategic plan and hone in on their value proposition. But revisiting doesn’t mean aiming for “last year plus a little bit more, please.” Don’t go back to planning as usual, but look for new models and revenue streams. Instead of getting bogged down in your funding model, the focus should be on the financial model and what steps you need to take to reach a point of financial sustainability, regardless of funding. Doing this puts you in a strong position to be able to adapt to changes to come while remaining purpose focussed.

Leaders of these not-for-profits must do two things:

  • Anticipate the long term future value demanded by their communities; and
  • Begin to generate ideas for adaptive business models to deliver this future value better than anyone else.

Sky’s the limit

Spark Strategy Innovation$96 million has been allocated to test innovative policies that engage the private sector. The fund which aims to reduce long-term welfare dependency, could boost Australia’s social investment strategy and partnerships between corporates and not-for-profits. This is an important step towards promoting a more innovative, agile and impactful social services system. For not-for-profits this means starting to think about how they can engage with the private-sector to unlock opportunities to increase their social impact for a sustainable future. There is no ‘right’ approach to take to do this. Rather, start thinking about all the points above. With some there will be a natural fit – others may appear more challenging. Don’t be scared of those ones.

The horizon for not-for-profits who embrace sustainable business models is looking good. Each year the budget highlights the uncertain and unstable nature of funding and reiterates to not-for-profits that they can no longer rely on the government for money. The key takeaway is don’t get bogged down in your funding model. Ignore it for now. Focus on developing the sustainability of your financial model, regardless of funding – and your funding model will naturally follow. There are a wealth of opportunities to harness through sustainable business models, partnerships, shared value and innovation to achieve financial sustainability and increase social impact for the new year and years to come.

If you are interested in learning more about business strategy and sustainable business models

Download our Whitepaper on ‘In Search of Sustainability’

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Or get in touch. We love to chat.

 

info@sparkstrategy.com.au

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