Not-for-profit organizations are almost always dealing with the fragile nature of their operations and existence. Fears of possible loss of major donors, fears of recession, changes in tax laws, changes in reimbursement revenues, changes in government regulations, and dealing with the ever increasing cost of operations, are always present.
What are some financial steps your organization can take to weather this pandemic and survive?
- Assess Available Cash and Reserves
- Your organization should know where you are with available cash.
- Determine how much of this available cash is unrestricted by reviewing your operating, money market, investment accounts, board reserves and review all receivable expected to be collected.
- Determine a typical months cash expenditures and consider different scenarios.
- Determine # of days of cash available by dividing available cash by a typical month’s expenditures to determine how long you can survive with no other sources of revenue or cash.
- Cash Flow projections over the next several months are important to identify future cash flow issues before they occur.
- Consider other possible sources of cash to include line-of credit, credit cards, board designated endowment funds, or donor restricted funds that would allow you to release restrictions for operating purposes.
- With this essential financial information, your board, management, and staff can work collectively to assess the urgency of the situation, make informed decisions, and develop a plan of action.
- Assess Impact on Organization’s Sources of Revenue
- Review sources of revenues and determine how they may change in the short term. Keep in mind program service revenues may decrease significantly if the availability of these services decline. Social service revenues may actually increase for services provided to vulnerable populations and fees for services contracts with federal, state, or local agencies may continue. Grant making agencies and foundations may actually provide increased funding for short-term emergency needs
- Organizations who rely on investment earnings to fund operations should consult with investment advisors to determine projected investment revenues.
- Organization needs to prioritize those programs and activities with the most impact and profitability while considering reducing, delaying, or eliminating those programs and activities with less impact and profitability. Can we reassign certain staff to those activities with greatest need and associated funding? What is the financial impact if fundraising events need to be cancelled or rescheduled?
- Reach out to your supportive donors and foundations to explain to them your specific situation and what you are doing to address this crisis and your proposed solutions. Also, ask them for support and help during the crisis. You might suggest to donors to consider making their annual contributions now when its most needed instead of waiting until the end of the year. For donors with restricted contributions, you might ask them if you can use their donation for general operations. You should communicate your plan of action with progress updates so your donors can track your progress and needs. You might consider in-kind donations in addition to cash donations for goods, services, and volunteers.
- Assess Impact on Organization’s Expenditures
- You can identify variable expenditures(payroll, travel, and office expenses) and determine to what extent they can be reduced while still allowing you to operate
- You can reduce those program expenses where you experience reductions in program revenues
- You can increase program expenses from those programs that see increases and reallocate staff and resources from other program areas.
- You should evaluate each type of expense to determine the projected increases or decreases to the projected budget.
- This maybe the time when difficult decisions need to be made regarding the reduction or elimination of programs and activities including the reduction of employees. Would some employees consider some volunteer services in order to keep the programs going and increase their chance of returning to work in the future? Keep employees informed of upcoming potential lay-offs or terminations.
- You should contact vendors and negotiate extended payment terms or payment plans. Also, contact your landlord or banker to delay rent or loan payments. You might check to see if you bank would consider interest only payments instead of full payments for a short period of time.
It is important to communicate with everyone in the organization to find solutions and have a collaborative approach. Lower level staff may have a better hands-on evaluation of what specific measures need to be taken. This crisis in not a result of lack of oversight, poor management, or bad decision making. Everyone seems to be effected by this crisis so take comfort in knowing that we are all going through this together at the same time. Your organization can do it’s best by having a pro-active crisis response that’s decisive and provides timely and accurate communication to all. You should be exploring all funding sources available to your organization including the federal loan, grant, and tax credit program available to help with these short-term financial needs. You should take this opportunity to reach out and show everyone how you have taken control or your organization’s destiny.
- Understand your cash position
- Assess damage to revenue streams
- Look at the dual bottom line to include financial and impact
- Include everyone in the discussion
- Communicate consistently
The following financial management strategies should be considered as financial contingency planning for your short-term financial needs with the following practical takeaways.
- Forgivable loans to maintain full operations. You should pursue this option if you plan to continue at the same staffing level as you did before the crisis. You will apply with your financial institution and it will pay your entire payroll for 8 weeks after funds are revised and pay your essential operating costs like rent payments, mortgage interest, and utilities. We would suggest you track how these loan proceeds are used so you can maximize the loan forgiveness once these funds are spent. Keep in mind the employer portion of Social Security and Medicare is excluded from the allowable payroll costs.
- Employer Social Security Tax Deferrals. Employers can defer the deposit and payment of Social Security taxes from March 27, 2020 to December 31, 2020. The deposit due date for 50% of the taxes is deferred to December 31, 2021 and the remaining 50% deferred until December 31, 2022. Please note that an employer is ineligible to defer paying the Social Security Tax if it acquires a loan through the Paycheck Protection Program and receives a decision from the lender that the loan was forgiven.
- Families First Coronavirus Response Act – Employment Provisions. Two weeks of emergency paid sick leave to quarantine, seek diagnosis, or preventive care including 2/3 regular rate for family member care. Twelve weeks of emergency family and medical leave for those employers with more than 50 employees. Employers paying the mandated paid leave are entitled to claim a refundable tax credit.
- Employee Retention Credit. This is a fully refundable tax credit for employers equal to 50% of qualified wages from March 12, 2020 to December 31, 2020. This is a great option for those organizations that have experienced a significant decrease in revenues or reduction in operations. An eligible employer may not receive the employee retention credit if the eligible employer receives a paycheck protection loan.
You can use these financial contingency planning options, but feel free to customize what works best for your organization. Let us know if we can provide assistance to help you make and implement these difficult financial decisions.