The Three Options for Nonprofits
Updated: Jul 17, 2020
By John Gillespie
Nonprofit and Social Enterprise Practice Leader, Charles River CFO
The road onward for nonprofits and then, hopefully, upward over the next 6 to 9 months is steep. I see nonprofit organizations fitting into one of three categories: Re-Start, Fresh-Start, or No-Start. Where do you see your organization? Don't leave the future to chance. Start planning for change now.
For many nonprofits, the Paycheck Protection Program loan funding, if acquired, was exhausted by the end of June, even though the money could be spent over 24 weeks. What we call the relief period for most organizations will conclude at the end of June.
When the calendar turns to the third quarter, the real recovery begins. Back to work won’t be a new normal as we integrate new workplace rules, worker safety, customer uncertainty, and an ongoing sense of economic upheaval. The road onward and then hopefully upward over the next 6 to 9 months is steep.
I see nonprofit organizations fitting into one of three categories: Re-Start, Fresh-Start, or No-Start, with key attributes noted.
rehire all or most of the organization’s staff
fundraising efforts are okay but not “sleep at night” levels
the organization has access to donor/investor funding or credit facility
Cash flow status: positive
the organization is a start-up again
new services or programs need to be developed and scaled up
internal pressure to identify, pitch, and close new funding sources
staffing challenge to rethink who is needed on the team and why
identify new target constituents and donors
initiate marketing efforts
Cash flow status: breakeven
No-Start (Hibernate, Merge, or Dissolve)
existing revenue streams only recover to 25 % or less of prior levels
once reliable sources of donations, grants, and sponsorships migrate to more stable organizations with similar missions
many of the core staff have left for more viable situations
key revenue sources invest elsewhere
Cash Flow status: negative
Regardless of good intentions, most nonprofits, in a normal environment, have less than 6 months of cash available in reserve. Under any virus impact scenario, there will be a number of nonprofits that may need to cease operations. The goal in these cases will be to focus on the mission (not the programs) and seek out partnerships with organizations that have a complementary mission.
At Charles River CFO, we have an opportunity to assist organizations to rethink their financial strategy. We can help some New-Starts thrive, and hopefully, some No-Starts survive.
What we’re advising our clients to do:
Create budgets that go way beyond Plan B
In Mark Greaney’s new book, “One Minute Out”, the hero, in a challenging situation, says, “I’m having trouble remembering a time where I actually executed a Plan A”. Most organizations we know are further down in the alphabet, maybe near G. We advise developing 3 scenarios for each budget cycle (optimistic, neutral, pessimistic). Assign realistic revenue projects for each.
According to a recent article in The Economist, “Many businesses will emerge from lockdown short of money with strained balance sheets and facing weak demand. In a survey for Goldman Sachs, almost two-thirds of American small business owners said that their cash would run out in less than three months”.
If you’re at the 3-month level, it’s time for emergency meetings with your board. Once a rough budget is created, convene meetings with all your key constituencies; your significant donors and funding sources, your bank, your CPA firm, and your landlord.
Do less better
My first webinar upon quarantining was with Josh Knauer. One statement resonated and keeps ringing in my head, “Do one thing well”. Many nonprofits have created multiple revenue streams. Not all of those will reach pre-COVID levels. Consider simplifying programming. Or consider how the use of remote technologies can create opportunities for new programming at less cost. Deliver outstanding results with one key program or activity, and then expand your horizons.
Financial discipline is needed now more than ever
In times of great uncertainty, solid fundamental financial management is essential. Use the Financial Sustainability Guide developed by Charles River CFO and Social Impact Architects, to gauge and then improve your financial operations. Here is a good post on this topic as well.
Improve the financial acumen of your board and staff
Many small nonprofits or social enterprises can’t afford an experienced CFO and many of those organizations have very limited financial expertise on their boards. Many experienced financial people want to give back during this crisis. Make recruiting a board member with significant financial experience a top priority. There are also multiple interim or part-time options to add financial expertise to your staff. A fractional CFO may solve many of your challenges.
We Can Help
We are smart, nimble, and flexible. If you would like to discuss how Charles River CFO can assist your company with part-time CFO and accounting services, please contact us at (781) 431-0420 or send us an email.