COVID-19 and Nonprofits: Start With These Self Assessment Steps
This is part 1 in an ongoing series of advice for nonprofits.
Start With These Self Assessment Steps
Assess your situation
While still early days in the U.S., COVID-19 is already looking like a long, wild ride with far-reaching impact on the nonprofit sector. The disruptive effects from this pandemic are different than what nonprofits have faced in the past. Natural disasters are bound by geography and a recession is contained to the market, but a pandemic cuts across all sectors. Revenue loss is defined not by source of funding but tied to people gathering to receive or enjoy the services of our nonprofits. Organizations called to serve those who are hungry, are in need of shelter, or are in search of healthcare face exceptional challenges. They have to manage increases in demand amid constrained capacity, concerns for the health and safety of staff and clients, and availability of workers who don’t have the privilege of working remotely or who are unable to both work and care for children who are home because of school and day care closures.
While NFF has considerable experience managing crises, we can’t fully anticipate what’s to come. So, we started with two questions: “What would be the most useful first step for the widest possible group of nonprofits?” and “What could every nonprofit do in a few hours?”
We arrived at this:
- Understand your situation
- Determine and monitor your options
- Communicate and reflect
We hope this is a helpful first step. We also want to know what is working for you – and what is challenging – and how we can help. Please share your feedback here.
Understand your situation: Cash flow
Would you set out on a road trip without checking how much gas is in the tank? Of course not. Much like embarking on a journey, organizations are best able to make decisions when we have clear and accurate information, especially in times of change or crisis. If you haven’t done a cash flow projection recently, now is the time. An accurate projection lets the management and board see if and when the organization will face cash shortages so you can then have meaningful conversations about what to do.
Unlike a budget, which looks at revenue and expense over a period, typically a year, a cash flow projection maps actual cash and expense as it is received and used in smaller increments, typically months. A good projection includes cash on hand at the beginning of the month, expected revenue, and projected expenses. Remember to account for proper timing of the release of any restricted grant dollars.
If a cash shortage is expected, there may be options to consider. On the revenue side, might there be an option to speed up collection of receivables? Is there an opportunity to speak with funders to convert restricted dollars to unrestricted funds for general operations? Are (cancelled) event goers willing to convert the purchase price of their ticket into a donation? On the expense side, what is the impact of non-mission-critical expenses? Are they necessary?
Once inquiries related to revenue and expenses are exhausted, organizations will better understand if they need subsidy and financing. Do you have access to savings (reserves) and sources of working capital such as a line of credit? If taking these measures we strongly advise including the board or board finance committee to ensure that the use is aligned with mission-critical services, there is a clear plan for repayment, and an alignment with your ongoing operating plan (see next section!)
NFF CASH FLOW TOOL
(Click here for a video walk-through of this tool.)
Determine and monitor your options
Once you understand your organization’s current cash flow, it’s helpful to plan for different scenarios and gauge what needs to happen for you to maintain level services or take other measures.
Building realistic scenarios (“what ifs”) helps management and leadership respond to unpredictable situations. For example, if an organization providing crisis intervention services receives relief funds, scenario planning would help management know when and how many staff to hire based on the anticipated number of clients served – and, just as important help to calculate the associated cost of serving those clients, ideally allowing the organization to advocate for full cost coverage of providing the additional services. Organizations impacted by loss of revenue or employees unable to work will need to anticipate how these interruptions will affect programs and staff and be prepared with a response. What’s more, scenarios take the wind out of the chaos uncertain times can cause and give organizations a chance to be thoughtful about big decisions that need to be made quickly and under pressure.
Scenarios are dynamic which is why the attached tool prompts organizations to consider three scenarios. Typically organizations like talking about ‘best’ ‘base’ and ‘worst’ but we encourage organizations to put more detail behind scenarios such as, ‘if our season is cut and we only receive 50% of earned revenue’ or ‘receive contract to serve an additional 300 clients, adding 6 new staff, 4 program coordinators, 1 program associate, 1 program manager.’ The assumptions allow management and leadership to inform the programmatic and financial narrative rather than relying on ‘gut feeling’ and ‘best guesses’.
NFF SCENARIO TEMPLATE
Communicate and Reflect
Communicating with board, staff, constituents and funders about the current situation and what is needed to fully respond is key for everyone to be able to do their part. However, talking about money and scenarios can be overwhelming! We’ve put together a guide for how nonprofits can talk with staff, their board and funders about their financial situation. We find that it’s useful anytime, but especially in times of crisis and change. Trust us, once you start talking, it gets easier! And don’t stop talking once the crisis recedes. Unfortunately, responding to crises, disasters, and uncertainty is becoming a regular occurrence. The more comfortable we become narrating our situation, our options, and what we need, the more we can work with our staff, board and funders on finding a path forward.
A special relationship: lenders
Scenario planning is especially useful for approaching how our organizations will service debt. As a lender to nonprofits, NFF knows the special relationship that builds between borrower and trusted lender. Good lenders believe in your mission and want you to succeed. Sharing your financial plan, opportunities and challenges will not only build confidence that you are managing the situation but open a platform for conversation for problem solving. If COVID-19 is causing trouble meeting debt payments or an unexpected operating deficit, be proactive in reaching out to your lenders. Lenders appreciate being forewarned and may be able to provide some temporary relief. It’s easier for them to do that if they have some time to consider the situation and inform others.
Be prepared to describe how the COVID-19 could impact business operations (e.g. impacts on service delivery, clients, staff, community etc.) and cash flow, and talk about steps the organization can implement to address operating challenges, what would have to happen for you to resume payments and when you expect that to be, and whether you need to change the terms of the loan. Be sure to keep your board informed. They can help communicate with lenders and their involvement will demonstrate their commitment to working with and supporting staff as it manages the situation. In some cases, they can help rally additional resources to get you through tough times.
NFF GUIDE FOR NARRATING YOUR FINANCIAL SITUATION