Armanino Blog

More Practical Steps for Nonprofits to Consider

by Renee Ordeneaux
March 25, 2020

Conditions in many urban areas and in large portions of California have changed dramatically in the past week, with widespread closures, unemployment and cancellations of events and activities. Organizations that have not yet begun a crisis response should do so immediately.

Based on what we have seen on the West Coast, dramatic responses are likely to occur throughout the country in the coming days. Given conditions in Italy and the experience in China, organizations probably need to plan for longer disruptions than what seemed likely a week ago.

Organizations that depend on public attendance are experiencing immediate impacts. Government-funded groups may be seeing continued support, while performing arts organizations and others that depend upon exchange transactions with the public may be facing conditions more akin to retail and restaurants. Priorities now are:

  • Focus on cash – Managing cash flows will be imperative, particularly for organizations with revenues concentrated in the spring months.
  • Manage estimates and assumptions – Some revenues and expenses are known and predictable in the short term; others are highly dependent upon events outside your control. The latter need constant attention.
  • Offer leadership – By modeling different possibilities, you can demonstrate foresight and wisdom. You may also make it easier to consider difficult decisions that your organization might have to confront. Don’t wait for the CEO or board to ask. Develop financial projections now.
  • Keep communicating – Whether your organization has substantial resources or needs to closely manage cash, those around you will have anxiety about the current situation. Thoughtful communication regarding financial matters can help lower that anxiety and keep team members focused on problem-solving rather than panic.

Forecast Cash

Organizations need to look out through the remainder of 2020. Fiscal year organizations, don’t wait until you go through your budget process. Make your best projections now. A simple method is to calculate the run rate and project out using the run rate or your budgeted expenses and your current cash position. These aren’t simple times, though, and you’ll probably need to do scenario analysis.

Have answers to the following questions:

  • How long can we go at our current run rate without running a deficit and/or running out of cash?
  • If we need to go into investment accounts, how much is available in assets that haven’t suffered large losses?
  • Are there capital projections in progress that will affect cash? Can projects be delayed?

Model and Report on Key Variables

A projection will only be helpful if it’s modeled with the best available information and updated frequently. If you have not already identified the key levers in your organization, you will need to do so now. Revenues should be separated based on various characteristics and modeled accordingly. Some things to consider:

  • Committed versus estimated revenues – Existing commitments should be confirmed with funders. Estimates should be modeled, preferably with multiple scenarios.
  • Cost reimbursed contracts versus fee-for-service – These behave differently and need to be projected based on changing situations. We have heard that some governmental funders will continue payment even when service levels can’t be met due to restrictions imposed by social distancing. Find out what your funding source is willing to commit to.
  • Earned revenues versus contributions – You don’t have to be open to make use of unrestricted contributions. While others in your organization may have primary responsibility for soliciting contributions, finance can help identify restricted sources that a donor might be willing to redeploy. The ability to generate earned revenues may be severely curtailed unless you can move to a virtual business model.

Develop Scenario Analyses

If you have Adaptive Insights or another budgeting tool, you may already be set up to consider different scenarios. If not, you’ll need to make do with Excel. Set up a spreadsheet that uses formulas based on various inputs so that you can easily look at different options.

Accelerate Cash Receipts

You will have more flexibility and be better positioned to weather a longer storm with more cash available.

  • If you bill a local government, restructure your accounting operations so that invoices go out as quickly as possible. That could include drafting March invoices now and finalizing at the end of the month. If you normally take 15 days to prepare a monthly invoice, now is the time to change your process so that it is complete in days, rather than weeks.
  • Try to negotiate advances from funding sources.
  • If you have payments scheduled for grants or pledges, contact donors to see if you can receive payment now.
  • If you have traditional accounts receivable from customers or partners, make collections activity a priority.
  • Make it easy to obtain payment via credit card so that collections can come in faster.

Consider Staffing Changes

As difficult as making staff changes is, it may be necessary to preserve the health of your organization and the ability to provide services. The finance team will need to model any proposed reductions in hours or staff. If you’re working on projections like this, make sure you’re including all necessary payments, such as accrued vacation or severance policies.

Don’t forget to consider the impact on associated funding sources and your ability to charge grants or restricted funds. Look at alternatives such as furloughs since you are likely to need to bring back staff once you’re able to provide services on a regular schedule.

Your Armanino teams are here and happy to help. Reach out to our experts if you have questions or need some assistance. For other information on managing your organization through disruption, visit our COVID-19 Resource Center.

March 25, 2020

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