Keeping in step with the NDIS

Ginger Rogers and Fred Astaire dazzled the world with their dance steps and spawned a great line about how women contribute to teams – “Ginger Rogers did everything Fred Astaire did. But backwards - and in high heels.”

Many NFP CFOs feel the same way – they do all the work of a CFO in a fully-resourced, for-profit business, but without all the accounting team and consultant back-up. They don’t get the recognition they deserve (or all the help they need).

In an environment of constant change, it’s as if the music is getting faster at the same time. The introduction of the NDIS and the consequent impact on operators in the disability sector is a case in point.

Just when you thought it was safe to go into the market

The introduction of the NDIS in 2017 has seen a shift from block funding to disability providers, such as rehabilitation hospitals and allied health providers, to competed-for, individual care models funded through the NDIS application program.

For a CFO at an operator, it means shifting the mindset to a vigorously competitive environment, where users have choice and where small, flexible operators may have a powerful competitive advantage over providers with large fixed assets and overheads. Operators need to compete for revenue, which translates to volatility, regulated tariffs and rising compliance costs, which translates to pressure on margins – what bankers call negative “jaws”. 

"The impact on many providers has been to reduce operating margins and the level of profitability, meaning they have had to dig into reserves to be able to continue to operate", notes Scott Hawker, National Manager of Not for Profit Endowments in Perpetual Private.

Buying the right to serve

As part of the switch to the NDIS, State governments have been selling down assets which previously provided services to the disability sector. These are “once in a lifetime” opportunities to enter or expand in existing areas of operation. According to Nick Johnston, new CFO of the Benevolent Society, it means growth, but it comes with a huge transition cost – taking on state employees under different and higher awards and acquiring a range of assets that may need to be rationalised in order to provide competitive service.

The Benevolent Society has the scale to take on a range of new services, and the clout to manage the IT, HR, compliance and CRM systems needed for an expanded business. But the pressure is constant, and a service “star” rating introduced by the State government seeks to ensure that service provision remains at a high level. 

Under these pressures, CFOs – and of course CEOs and their Boards – need to intensify the focus on the efficient delivery of service to this critical sector. “Not-for-profit” does not mean consistent operating losses – if it does, key operators will not survive. Indeed, a key medium-term outcome of these changes is likely to be further merger and acquisition activity, and the sale or closure of service lines.

As it goes in disability services, so it may go in the aged care sector as well. Increased focus on home care and customer-centric care will continue to intensify pressure on costs and quality service delivery, at a time when the aged care Royal Commission is likely to weigh heavily on the costs of service delivery and compliance.

How Perpetual helps

Perpetual provides solutions and advice that support the disability and aged care segments. We provide key investment advice and portfolio management services to maximise financial returns and help in bolstering cash flow. In addition, Fordham, our specialist business services provider, supports disability and aged care business owners and operators with business planning.

For assistance and support, please call Scott Hawker, National Manager, NFP Endowments on 02 9229 9319 or scott.hawker@perpetual.com.au