Thursday, July 15, 2010

There's money in those bank accounts

Pro Bono news recently reported that nonprofit organisations in Australia have around $295 billion - yes that is billions, sitting in daily trading accounts, where the money attracts little or no return on investment. This sum represents considerably more money than is needed for day to day operation of the sector.

This single factor highlights both a dilemma and an issue for our nonprofit organisations. The dilemma is that they are trustees of public monies and community interests and by nature risk averse. For Boards of Management it is less risky to leave funds lying around, earning little, that to risk the consequences of a poorly considered investment.

This leads to the core issue. That is managers that do not have the knowledge or skills in financial management to be able to provide Boards with well informed and strategic advice on investing. This is a more significant issue than it might appear on the surface. High end financial management is not something to be done intuitively, afterall it can go wrong. It is a learned skill - learned from very experienced and skill people. This requires an investment in appropriate development. Equally importantly it requires board members with similar levels of experience to enable them to firstly understand investment processes and tool; while also assessing the risk of such investments.

At the top level, perhaps in the 1% of larger nonprofit organisations these skills exist. For the remaining 99% of nonprofits, the lack of knowledge, experience and education at both board and management level is creating a situation where money that could be generated and used to enhance service delivery to the community is being squandered and donated to the banks - who, in turn, use your money to make their profits.

What is the answer? A two-fold approach is required. The first is that board members and managers gain knowledge and understanding of financial management, beyond simply setting organiational or program budgets. The second is people involved in the management of nonprofits need to base their investment decisions on knowledge and facts rather than misconceptions about how financial tools may be used; or worse still based upon common mythology.

Let The Journey Continue

John Coxon
Taking You From Frontline Manager to CEO

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