As the COVID-19 pandemic continues, nonprofits worldwide are facing an uncertain future. Many, funded by restricted grants, find themselves in the predicament of having programs funded but core infrastructure lacking the funds to continue. Others face high demand and strained resources. Some organizations, which may be paid for services rendered in person, are scrambling to think of new ways to serve their constituents while maintaining social distancing.
It’s exhausting, it’s exhilarating, and it’s forcing us all to draw from our well of creativity and ingenuity to get through these times.
Navigating the Current Crisis
Nonprofits may feel like they’re on a raft paddling down a swift river. The rapids shoot them towards rocks, and they feel they must avoid the rocks at all costs.
COVID-19 is like the rocks in the river. Hitting the rocks is inevitable, but how well your organization works together will affect the outcome. With the right planning and organization, and everyone working together, your nonprofit can minimize the financial impacts of the COVID-19 crisis, move past it, and thrive.
Financial Discipline, Financial Framework
Financial discipline is a critical practice even when times are good, but especially vital when times are challenging. Fiscal discipline begins by building a robust financial framework.
Such a framework consists of:
- Correction of any deficits, for example, secure unrestricted funds to compensate for restricted funds that leave core administrative functions underfunded while programs are well funded. You need capital for overhead and infrastructure just as much, if not more than you do to keep programs running.
- An annual operating surplus that can be carried over to smooth “lean times.”
- Development of healthy operating reserves with 6 to 12 months of expenses covered by the reserve.
- A diversified revenue mix, so the organization isn’t dependent upon a single revenue stream.
What if you’re far from this ideal? Then it’s time to look at several scenarios and decide on your strategy moving forward.
Gather the data that you have on hand about revenues and expenses. Revenues may include restricted and non-restricted funds, fee for service activities, membership fees, and donations. Expenses should include both overhead and operating expenses as well as salaries, infrastructure, and program-related expenses.
Next, ask everyone to join the conversation about the financial situation. This isn’t time for a subcommittee or a task force. Since everyone in your organization will be impacted by the road you decide to take, get everyone’s input into the decision.
Evaluate the available data based on bad, worse, and different:
- Bad – what if the crisis continues?
- Worse – what if things get worse?
- Different – what if things change?
- What is the big change we drive in this world or our community? This gets to the operating principles of the organization. Why do you do what you do?
- Next, look at the programs you have. What do you do the best? Which is the only program you do, one that nobody else does or does well?
- Are there any programs that you cannot provide now because of social distancing?
Some scenarios you might wish to consider include cutting back on all programs, cutting down to a handful of mission-driven programs, or focusing on a single area until things return to normal. The only way to consider each scenario effectively is to utilize all of the data resources available to you, put the facts side by side, and evaluate them against your organization’s mission and unique position in the world.
Resilience and Adaptability
In the book Good to Great, author Jim Collins uses animal metaphors to emphasize how successful companies weather turbulent times. One animal he points to is the hedgehog.
The hedgehog is not the most beautiful, exciting, or exotic animal in the zoo, but it is one that is undoubtedly the most resilient. Hedgehogs fill a unique ecological niche yet can adapt to many different environments. They’re one of the oldest mammal species known to biologists. Their longevity as a species may be attributed to their adaptability.
If your nonprofit is to remain viable for the long term, it must be adaptable during these challenging times. Like the hedgehog, you’ve got to find your unique niche and make the most of it. The only way for nonprofits to find their unique niche is to consider potential scenarios and weigh the impact of their choices against the mission. Which choices will help you achieve your mission with the least possible impact on margin?
It’s neither easy nor pleasant, but frank conversations about programs, funding, and long-term viability are necessary right now. We’re all wishing and hoping that this epidemic will pass quickly and that our healthcare industry finds a vaccine or a cure. Until then, we must deal with the reality of the situation, examine the data at hand, and plan for the future of our organizations as best as we can.
If you’d like some help with nonprofit planning, contact Welter Consulting. Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.