The COVID-19 pandemic was an entirely unprecedented event for everyone, causing a fair amount of financial stress all around. Nonprofits like yours responded admirably, updating your websites with new virtual opportunities, cutting back on your budget, and shifting your attention to keeping the lights on at your organization.
However, responding to the sudden crisis likely required quite a bit of scrambling to come up with financial strategies to get through these challenging times.
Keeping this in mind, many nonprofits are looking to create plans that will help them better handle future crises.
Future crises might come up in other forms, like recessions, making it all the more important to be prepared for anything. In this guide, we’ll discuss how your nonprofit can effectively respond to any crisis that might arise.
- Take Inventory of Net Assets and Liquidity
- Prioritize Your Philanthropic Initiatives
- Discuss Options with Partners and Stakeholders
- Consider Credit as a Last Resort
During the COVID-19 pandemic, the government lent a helping hand through the CARES Act and subsequent legislation, providing assistance to pay staff, file tax forms, and more. However, your nonprofit shouldn’t rely on this type of assistance from the government in the case of future crises. It’s better to have a plan to handle your finances independently in case you’re unable to receive federal assistance.
Take Inventory of Liquidity and Assets
You likely know how much your organization has in the bank. However, in order to prepare for crises, your organization should take a deeper analysis of accounts and assets because they may not all be helpful in the case of an emergency.
Take inventory of your liquidity and assets that can be leveraged in the event that you need some additional capital.
First, consider the liquid capital you have on hand that can be used for operating expenses. Liquid assets are easily leaned back on during a crisis because they can be used without negative repercussions for your organization. They’re not tied to donors, your board of directors, or any restricted fund in your system. With effective nonprofit accounting practices and fund accounting software, you should be able to identify and calculate the liquid assets you already have on hand quickly.
Then, look into the other assets at your disposal. Your board members might have placed restrictions on various funds that can be redesignated in times of crisis. When you encounter a crisis that requires you to be financially flexible, they may be willing to redirect those funds to your most pressing needs.
If a crisis is on the horizon, make sure you understand which of your assets can be liquidated without harming your organization’s overarching strategy. Once you have this information, you can determine your financial cushion in the event of emergencies. Then, you’ll need to prioritize your initiatives to advance your organization’s mission.
Prioritize and Adjust Your Expense Budget
Usually, when nonprofits begin prioritizing organization initiatives, it’s an exciting time! This is often done in times of growth to get people excited about new initiatives and ensure nothing falls through the gaps. However, in times of crisis, this reprioritization of activities and expenses requires a more somber approach.
Instead of focusing on growth and new opportunities, prioritize your expenses during a crisis to maintain what you’ve already accomplished. Doing so ensures you don’t lose progress when you pick back up after the crisis ends.
As you rely on fundraising and the generosity of your dedicated donors, there is always some uncertainty in nonprofit funding. However, in the event of a crisis, you should always focus on what you can do to create more wiggle room in your budget. Ultimately, you can ask for donations, but there is no guarantee that you’ll receive them. So, focus on how you can reprioritize expenses on your own by:
- Cutting back where there will be fewest repercussions. Proactively cut back on budgetary items where there will be little backlash. For example, if you buy donuts for your team on Fridays, you can likely press pause on that particular tradition without major operational disruptions. See how much you can save with this strategy before moving onto more drastic measures.
- Identify fixed budgetary items. Your fixed and vital budgetary items are those that you won’t want to change if a crisis occurs. For instance, you don’t want to cut back on employee paychecks, and you need to continue paying rent for your organization’s office lease. Identify how much you spend on these so that you know what you’ll definitely need funding for.
- Consider your current growth initiatives. Crises generally come out of nowhere, so you might be in the midst of a growth initiative when it hits unexpectedly. Crisis management focuses on maintenance rather than growth in most circumstances. Therefore, consider if there is an opportunity to pause the growth initiative and resume it when external circumstances return to normal.
- Create a prioritized list of expenses. Using the information you’ve just gathered through the above points, create a prioritized list of expenses for your organization. This will help you determine where to cut back if it becomes necessary. It may also highlight some opportunities to proactively cut back until the crisis comes to an end.
When a crisis occurs, organizations often start panicking and end up scrambling to get their finances in order. This often leads to ineffective decisions which can end up prolonging the negative financial implications of the crisis for your organization.
You can create a plan to use your funds efficiently much more easily when your organization already checks in regularly on your budgetary expenses. Jitasa’s nonprofit budgeting guide recommends checking in on your budget annually, quarterly, and monthly when external circumstances are steady. If you’re already doing this, it makes it easier to know exactly what’s happening with your budget in the case of a crisis.
Discuss Options with Partners and Stakeholders
Your nonprofit has plenty of dedicated stakeholders who are committed to seeing your organization succeed. And often, many of them will be willing to help you through difficult and uncertain times.
Understanding the current cash flow and any restrictions on funds at your nonprofit will help you determine how to approach asking these stakeholders for help. For instance, if you have a substantial amount of restricted funding already dedicated to one program, you wouldn’t need to ask for additional funding to ensure it stays operational throughout the crisis.
When you enter into fundraising conversations with your partners, stakeholders, and supporters, be sure to keep the following in mind:
- The ideal gift to your organization is unrestricted funding, but donors might prefer to fund specific projects.
- You should already have an ideal gift amount in mind to ask for from your supporters as well as a smaller amount that you can ask for if the first is too much.
- If you’re going through a crisis, your supporter might be too. Be cognizant of their own financial situations before you ask for assistance.
Typically, the supporters you’ll turn to in times of crisis are those who have shown the most dedication to your cause. Often, these are your major donors, but you may also be able to turn to your volunteers.
Let’s start by discussing major donors. Your major or even major prospects are those who are highly committed to your cause. Bloomerang’s major gift guide provides the following equation about major donors:
Given the high engagement and potential high capacity to give to your organization, you can typically assume that these supporters are dedicated to your cause and are both willing and able to provide a helping hand.
The second group of people you might consider reaching out to are your volunteers. These supporters can help pick up the slack if they’re willing to contribute their time. If you have miscellaneous tasks that you need assistance with, you can seek out a qualified volunteer rather than hiring someone outside of your organization to handle it.
Plus, you might be able to secure volunteer grants, providing additional funding to your organization. This guide explains that volunteer grants are funding provided by companies to the nonprofits where their employees volunteer. If your volunteers work for one of these companies, you might have another opportunity for earning additional revenue.
Consider Credit as a Last Resort
In the case of COVID-19, the crisis we’ve encountered lasted for longer than a year. This was a prolonged crisis and we hope that no one will ever encounter one similar to it again.
In prolonged crises, your organization may find that your crisis financial management just won’t stretch as long as you need. If you have no other options, you might decide to open a new line of credit.
Credit should be a last resort. While it can provide the last little push that you need to overcome the tail ends of a crisis, there is great danger of incurring debt. Taking on too much debt can result in prolonging your financial crisis as you struggle to pay it off in a timely manner. What’s much better is a sustainable fundraising strategy that will help you bounce back from the crisis.
In the case that you do open a line of credit, be sure not to take out more than you absolutely need to ensure you can pay it off when you’re able.
We all hope that a crisis like the COVID-19 pandemic will never occur again. However, it is always better to be prepared in the case that something does go wrong. If you find yourself facing a crisis, follow the steps outlined in this article to make sure you can bounce back in a timely manner.
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not-for-profit organizations.
We are super happy that Jon provided this article - because what could be more strategic than understanding and managing your financial situation?