COVID-19 is more than a formidable public health threat. It’s the great disruptor, shaking up nearly every aspect of life. The nonprofit sector faces profound effects—this year and beyond. Aside from ensuring their employees are safe and figuring out how to run an organization remotely, nonprofit leaders face the possibility of a derailed economy which could dwarf the Great Recession. Most major income streams are at risk, some immediately (events, individual giving, corporate contributions) and others more likely delayed (foundations, government). Short-term assistance may be available, and while that may help, it won’t be enough.
There’s not a lot of good news in that opening paragraph, and I’m reminded of the time I was checking into a hotel in Kansas City, when a bellhop approached the counter next to me. Speaking to a manager in the back, he said, “Excuse me sir, we have a plumbing opportunity on the third floor.”
This is worse than the worst case most of us imagined when formulating 2020 budgets. But now that we’re in it, it’s a perfect opportunity to craft a plan not just to survive this unsettling time, but also to thrive afterward.
A key to survival will be systematically addressing short-term challenges, while simultaneously laying the groundwork for ongoing financial health. The two must be linked, or you could wind up winning the battle but losing the war. This is a lesson from the period of 2009 through 2014, a post-recession hangover in which many nonprofits struggled and more than a few folded. We can avoid this.
Photo by Dzmitry Tzelebionak, via Unsplash
You’ll need short- and longer-term plans. They will combine to form your financial strategy, which should reflect new budget realities and a changed context for the organization’s work. It should include specific financial goals over a multi-year period, and flexibility to change course as events continue to emerge.
This isn’t simple stuff, but you can do it. Here are 10 interconnected steps you can take:
Assess Your Cash Position
There’s no substitute for cash, especially the unrestricted kind. How much unrestricted cash (and equivalents) do you have in the bank? How much do you project monthly through the end of this year?
Prioritize Spending Cuts
What expenses can you cut in the short-term and later in the year? How big a dent will they make in your cashflow? You can set priorities using a green-yellow-red system, from low-hanging fruit to untouchable. Consider, however, that some cuts could actually make the situation worse.
Evaluate Income Replacement Options
A recent survey showed that 65% of nonprofits have already canceled a fundraising event. Whether that applies to you or not, what alternatives can you consider to bolster revenues? Doubling down on your relationships with funders should be high on your to-do list; they may be more open, flexible and generous than you may expect. In addition, you may find special assistance for short-term budget relief.
Determine Your Required Cash Position Pivot Point
All nonprofts should have healthy unrestricted reserves, which I define as 6-12 months’ operating expenses for most organizations. (The exceptions are those that get over 50% of operating income from stable fees like insurance payments or rents, and there I advocate 3-6 months.) In times like these your reserves may drop lower than this range, but you need a reasonable target for the start of 2021. Your short-term plan must hit that target.
Revise Your Budget—With Contingencies
Now you can revise your budget, which will serve as your operating plan for the rest of the year—subject, of course, to possible further revision. I suggest re-examining your budget every three months while current turmoil persists.
Assess Your Business Model Fundamentals
There is no better or more appropriate time to revisit the elements of how your organization fulfills its purpose. A fresh look can inform decisions you make now, and even help you raise more money in the short-term. Here’s a paper that describes the elements.
Envision Income Constraints for 2021
It’s not too soon to look at assumptions for income streams in 2021. What’s your worst case, and what’s even worse than that? Being conservative (and on the pessimistic side) can help you in this particular case. We need to prepare in order to have a flexible strategy, and making clear assumptions now can help us adopt a big picture stance as circumstances evolve. Remember, the task is not simply to make it through this year intact!
Construct Alternative Scenarios
Building on your range of income assumptions, you can develop 2-3 alternative scenarios for the next couple of years. What will your services and staff look like? How will you be positioned to grow? You can revise these later, but knowing possible destinations keeps everything in context.
Adopt a Flexible Financial Plan
Now you’re ready to make decisions on your financial strategy. The short-term plan should link to the multi-year plan. Again, I recommend adopting a strategy subject to later revision, rather than hitting the hold button and waiting to see what happens. There will never be a perfect time when you’ve eliminated unknowns.
Run, Monitor, and Adapt
Get the best information you can, make decisions and then run with them—unapologetically. Keep monitoring progress and adapting as needed. Even if you have major adjustments, you’ll be better off for having been proactive.
I’ll note that there are a few other steps that can help, if you have time, for example:
Clarifying your underlying structural budget surplus (or deficit)
Conducting full-cost analysis of your major activities
Examining “pricing” of your restricted grants
Evaluating needed investments in fundraising or technology that can help you stay resilient in an altered ecosystem.
These are important financial issues that can be incorporated at revision points for your work-in-progress strategy.
Let’s acknowledge, this is a lot to digest, on top of everything else you’re dealing with. To help nonprofits navigate the COVID era, Public Interest Management Group has developed two new programs that are practical and accessible, and address financial planning essentials. We’ll dive deeper into the planning steps than can help you survive the storm and thrive in the calm that will, eventually, follow:
Live Webinar Financial Planning Training
We’ve designed a series of two webinars that lay out a process for building a two-stage financial strategy for surviving the COVID era. It covers tactical approaches to cutting costs and boosting income, critical financial indicators, risk management, full-cost analysis, methods for designing alternative scenarios and building alignment through financial leadership.
We’ll be offering the program several times in the coming weeks. See known event dates here.
Strategic Financial Planning Cohorts
Delving deeper with organizational leaders, we offer a program which will guide virtual groups of nonprofits through a concise planning process combining analysis, coaching, expert reviews of plans, and development of peer support channels for participants as they navigate the evolving situation. Participants will emerge with flexible financial strategies that set targets for short-term performance and longer-term sustainability.
If you are interested in hosting a webinar or a cohort group, please contact us.
I’ll close on a positive note: We may all be physically distancing, but you aren’t alone in this process. View this as an opportunity with potential unforseen benefits on the other end, and great things might just happen…