During the first wave of COVID-19 in 2020, many charities and for-purpose organisations had their normal activities curtailed, which affected their revenue. But at the same time, the demand for some of their services increased.

The pandemic experience has highlighted the need for not-for-profits (NFPs) to be able to confidently forecast their liquidity and cash flows. For this, they need robust and flexible financial models that help them respond to changes.

To assist, PwC recently delivered (via virtual classroom) our two-day Professional Model Build training to NFPs across Australia. PwC’s deals modelling team has built many models for NFPs, and we’re passionate about using our skills to benefit society, so running this training was a no-brainer.

We wanted to equip these organisations with the skills they need to answer the big questions being asked of them and to understand the impact of ‘what if’ scenarios: What if this happens? Will we have enough cash to sustain our operations? Will we have sufficient resourcing to keep serving our clients? And so on.

Providing clarity around these questions is the foundation on which to build an action plan.

Demystifying the financial model

The finances of NFPs are often run by employees and volunteers with an extraordinary diversity of experiences. The main benefit for hundreds of clients who attended the Professional Model Build training is being able to translate non-financial or non-technical views into a financial form that can be understood by others.

Financial models that live in businesses can get very complex and clunky, and people can feel overwhelmed when they’re asked to produce one.

We’ve found that once we give our clients a solid approach to building a model, they feel comfortable to tackle the challenge and even enjoy the task.

While the purpose of any financial model is unique, the approach to building a financial model is, thankfully, the same for any organisation.

The key stages are: scope > specify > design > build > test > handover.

Scope and specify

Long before you even think of opening Excel, your first steps are to scope and specify. Hold workshops with all stakeholders who will be using the model or relying on its information to understand the problems they want to solve and their critical success factors.

For this, we use template specifications to accelerate the process and keep costs low.

Every financial model is built to tell a story. You want to understand the story that this model is trying to tell, and the questions it needs to answer.

This stage is a hugely important part of the process and should take up 35% of the total project time.

Design, build, test and handover

Next comes design – how the model will look and be structured, such as where are the inputs and outputs located and the types of different dashboards.

Once this is done, it’s time for the build phase, where you start plugging formulas into the model.

Then there’s testing – putting different numbers into the model to check the outputs are correct, and asking someone else to check the formula. This is important and should take as long as the build stage.

Finally, there’s the handover, where the modeller supports the model user in accepting the model as their very own and that they’ll be confident using it into the future. This is easy so long as the model owner has been on the journey right from the start.

Key takeaways

As we closed the course, there were two main takeaways for our for-purpose modelling training for clients.

First, keep it simple. NFPs are surprisingly complex organisations so strive for simplicity. If you’re the only person who understands the model, it’s a bad model.

Second, a robust scoping and specification phase is a must to ensure all stakeholders such as staff, donors and customers are on board, and everyone knows what you’re doing and how you’re doing it before you do it.

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NFP Professional Model Build course

Due to the success of the NFP Professional Model Build course, PwC is running it again later in the year. For further information or to register your interest in the next training session, email [email protected]

Your questions answered

Have a financial modelling or spreadsheet question you’d like answered in Acuity? Send it to [email protected] with ‘Ask Ian’ in the subject line.