The COVID-19 pandemic, waves of civil unrest and rocky economic times have led to a tsunami of external and internal forces for which many nonprofits have found themselves unprepared. Organizations are struggling to continue serving their constituencies while keeping their employees safe and doors open to the extent permitted, all under the shadow of questions about funding.
The uncertainty makes it challenging to plan, but not impossible. The strategies below can help you navigate today’s turbulent waters.
- Change your approach. Most organizations plan for time horizons of one to five years, but the current environment calls for much shorter increments. Reduce the window to one to three months, with regular reviews and adjustments within those periods.
Similarly, you might find that your long-term strategies have gone up in smoke due to the topsy-turvy COVID-19 world. It may make more sense to think tactically for now so you can adapt on the fly to deal with how shifting social landscapes and economic developments affect your constituency and your organization. Of course, even short-term tactics should reflect your mission, goals and values.
- Re-evaluate your programs. Rather than making across-the-board cuts of a certain percentage to address budget constraints, take the time to perform a reassessment of your programs. Determine the impact and effectiveness of each, considering current and expected needs. Allocate your funding to those programs first. Include as many stakeholders as possible in the evaluation process, including all levels of the organization and your clients.
You may need to put some programs on hold and even eliminate others. This often is painful, but it will allow you to deploy the freed-up resources to other work that has greater immediate value.
- Explore alternative revenue sources. It’s always preferable to maintain multiple revenue streams so you’re less vulnerable to the loss of one. Many organizations have discovered this the hard way as COVID-19 forced the cancellation of major fundraising events.
If you depend largely on one or two funding sources, you should begin researching the feasibility of additional sources. Many foundations have vowed to increase their grant making in response to recent events, and some local governments are approving emergency funding for organizations that support at-risk populations. You also could expand your high-impact services to more locations or populations or provide them on a fee basis (perhaps on a sliding scale or pay-what-you-can basis).
- Think about joining forces. Smaller organizations, in particular, might benefit from working with nonprofits with similar values or constituencies (or even with for-profit businesses). A collaboration could be a merger, joint venture or something less formal.
You might also consider cutting your rent expenses by sharing space. And you could see savings by sharing equipment or staff and consolidating certain purchases to obtain lower rates or discounts from vendors.
- Establish a COVID-19 crisis management team. COVID-19 may get worse later in the year. If you haven’t already, form a crisis management team to monitor internal and external virus-related developments. It should meet regularly to evaluate risks and opportunities and closely follow governmental and health care guidance to ensure compliance.
The crisis management team also should take a hard look at how COVID-19 has played out so far for the organization. They should seek input from stakeholders on what has worked and what hasn’t. As the team identifies gaps, it can devise solutions to improve future responses to pandemics and other crises.
One thing is certain: You can’t afford to put off planning, tempting though it might seem under current circumstances. The financial crisis back in 2008–09 demonstrated that the nonprofits that took prompt action were more likely to avoid the need for drastic measures later. Contact your CPA or accountant if you need planning assistance.
Staying on top of the numbers
Before making any critical decisions for the future, whether short- or long-term, nonprofits need to arm themselves with up-to-date information on their financial status, including their cash positions. Cash, as they say, is king.
Ratios such as the current ratio — current assets divided by current liabilities — provide a snapshot of your ability to satisfy your short-term financial obligations, those due within the coming year. (A current ratio of 1.0 or higher generally indicates the ability to meet such obligations.) But the liquid funds indicator gives you a better understanding of how long you can survive without additional funding.
Liquid funds indicator = Net assets less restricted endowments, land and plant, property and equipment / Average monthly expenses
This figure shows the number of months before the nonprofit will completely exhaust its liquid funds, assuming it receives no additional revenue inflows. To get a fuller picture, calculate the indicator running multiple scenarios that envision best-, moderate- and worst-case circumstances for receiving additional liquid funds.