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Why being financially sustainable is important for organisations, especially in uncertain times?

04/11/20
by Petra Veres and John Cammack

Sustainability is a buzzword, but what does it mean for organisations? Being sustainable, and especially financially sustainable means that the organisation has the ability to adapt to new circumstances and to develop resilience in uncertain times. Those organisations which fall into the category of “financially sustainable” have a greater potential to bring broader societal benefits even during unforeseen global challenges. Their service is not, or is less affected by external impacts, such as a decreased income due to restrictions or lack of funding by donors.

 

It is a complex task to establish a financially sustainable organisation. An organisation, as such needs to have its budget in order and manage its cash flow effectively. This way not only the impact of its programmes but the organisation’s credibility with partners, donors and other stakeholders can be improved. The organisation needs to manage its reserves or organisational savings and core costs effectively as these can be affected by external events. The latter, which refers to rent, water, electricity, salaries, telephone charges, travel expenses and technological equipment need to be covered by either the organisation itself or with the support of donors, otherwise the organisation will not be able to plan easily for the future. A financially sustainable organisation needs to develop a financing plan which allows to review the needs of the organisation and how income can be generated in various ways. If the core costs are suddenly not maintained, due to lack of external support or a rise in unpredictable necessities, such as additional technological equipment, the organisation’s sustainability is disrupted. In the response to these unforeseen expenses or loss of income reserves play a crucial role. Holding savings enables the organisation to continue its work even if income or fundraising is not as high as expected, or when money is not received or received late. This way money not budgeted can be spent if an opportunity or emergency arises. [1]

The establishment of a financially sustainable organisation needs time but more importantly, it needs skilled and knowledgeable professionals. So, what skills and knowledge are we talking about exactly? 

The above-mentioned practices will require professionals, regardless of their role, with good basic understanding of financial management: How is cash flow managed within their organisation? How does their organisation extract funding? Does this funding go towards core costs and reserves or only to project delivery? They will need to be able to plan and monitor budgets, communicate effectively about finance with donors, partners and other stakeholders and manage their expectations for project funding and financial reporting. 

 

Being financially sustainable is desired for any organisation which wants to be able to deliver programmes effectively and plan easily for the future. Yet, why should we focus on it more during the recent pandemic? How did this global uncertainty affect different types of organisations and how can we sustain resilience and responsiveness? 

The recent pandemic brought changes in where donors are directing their funding and how they support their partners and grantees. For some organisations to be financially sustainable and resilient is not only a necessity for project delivery but for survival. The access and utilization of resources differs from one organisation to another in different country contexts. It is evident that larger organisations’ funding may not be tremendously affected by the global pandemic as they are able to extract funding from a larger pool of resources. Large international NGOs and INGOs are relatively well positioned as well as they have the support of their donors, network of local professionals and financial base similarly to big for-profit implementing partners, whose infrastructure remains attractive for donors. However, midsize and small local NGOs and Charities will face hardship to a larger extent.[2]

Programmes need to cope with lockdown requirements, travel restrictions and health concerns while responding to different and additional needs. While the cost structures and parameters of programme delivery changes and the duration of this shift is unknown, international and local organisations’ cash flow and liquidity becomes critical and sensitive to changes. There’s no doubt that those who deliver the programme need more flexibility from their donors and partners at the moment.

Funders have increased their flexibility due to the uncertainty in current grant agreements. They’ve been allowing organisations to use money for sick pay, relaxing reporting deadlines, adapting activities while acknowledging that agreed timeframes might change, and activities might need to be adjusted accordingly.[3]Yet, this flexibility might be only a short-term solution and by time, funders might begin to direct their funding towards COVID-19 alone, on specific health related programs and cut back on other funding projects.[4]

There is a high need from large organisations to increase efforts in cooperation and sympathize with their smaller partners, while for small, local organisations to be more accountable and transparent in their financial management. Regardless of what organisation people work in it is essential to understand various needs and expectations of partners. With the basic set of skills and knowledge in finance professionals, working in an NGO, Private sector, UN agency or government ministry, will be able to increase these efforts and build their and their partner organisations’ capacity.

 

At IMA International, considering the rapid change of the sector, we are offering a Sustainable Finance training course for professionals working in International Development. This IMA course will cover all the finance basics, and how they operate in uncertain times –budgeting, financial sustainability and resilience, financial controls, and using financial information in decision making and communicating about finance. It also has a module covering how to a build a partner’s financial capacity. The training will enable participants to meet others from different parts of the world and engage and understand challenges in different organisations. It is a very flexible training, which helps practitioners to use finance skills to build their own, and partner organisations’ financial capacity even during uncertain times.

If you are interested in this modular course please email us at post@imainternational.com.

 


[1] Cammack, J.  (2014) Building financial management for NGOs and community organizations, Practical Action Publishing.

[2] Cornish, L. (2020) Interactive: Who's funding the COVID-19 response and what are the priorities? DevEx.

[3] Bond (2020) How is Covid-19 affecting NGOs’ finances and operations?

[4] Kumar, R. (2020) For the global development community, COVID-19 poses big questions. DevEx.

 

 


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