Financial Leadership When It All Feels Impossible

Not far out of anyone’s memory, COVID brought many challenges to nonprofits, including pausing critical programs, reduced funding, staffing adjustments, and applying for critical governmental aid.

Today, many nonprofits are dealing with economic uncertainties and potential loss or changes to funding from federal grants. This instability threatens nonprofits’ vital services provided to their communities.

Nonprofit boards and leaders are asking:

• Do we have enough liquidity to meet current obligations?
• What is the impact of the loss or curtailment of grant funding over the next three to six months?
• Do we need to make staffing adjustments now or in the near term?

Financial leadership during times like these requires an unflinching look at your current fiscal state and a willingness to seek and share solutions across your whole organization. Holding true to your mission can guide you toward thoughtful, compassionate, and effective decisions during hardship.

To help you, we’re offering a few simple financial tools and some creative approaches to navigate otherwise “impossible” choices.

This is a refresh of content we shared back in early COVID — with a few twists for today’s environment. In many ways, the muscles we built as financial leaders five years ago can serve us well in current times.

Financial tools focused on the future

It’s critical that nonprofits have a tool to accurately assess where they stand financially and be able to see the potential future and impact of financial decisions.

We recommend you develop a simple cash forecasting tool (shown below) that can be updated weekly and project 8 – 12 weeks into the future. It’s called a flash report because it’s updated weekly and is highly condensed. It draws data from the balance sheet (debt principal, line of credit, and investment transfers) to provide a full picture of what is happening with your operating cash. In some cases, it may be important to have an operating version and a restricted version if your organization has significant donor restricted net assets.

It's important to update the flash report each week. We recommend setting a goal to have it out by close of business each Monday. This can drive impromptu meetings and financial decisions based on what is happening compared to your forecast.

As hard as it will be in uncertain times, your estimates must be bluntly realistic. Stick to what you know is certain, not what you hope will be. Then use the truth of what you see to form strategies to fill funding gaps and/or cut costs.

Include a summary on a separate page or below your forecast to show what happened the prior week compared to the week’s forecast. Notes can be added to describe significant variances. Some nonprofits also include a short list of top grant receivables and highest outstanding payables to have insight into future cashflows.

Engage funders for early payment

Once you have a reliable picture of your upcoming cashflow streams, you can look for ways to bend it in your favor. If you are aware of payments from predictable funders scheduled more than a year out, approach them about an early payment. Though many of your regular contributors and grantors may be facing financial stresses of their own, never underestimate their willingness to help if they can.

Another way to make foundation grants available ahead of schedule is to ask current funders to release any restrictions they have placed on your grant – both time and purpose restrictions. During times like these, you can be certain that your funders are aware of the extraordinary circumstances. If asked directly, most of your funders would consider themselves supporters of your organization’s long-term survival. Sharing the truth about your emergent situation may offer you an opportunity to expand and deepen your relationship with them – and get them to free up the money.

Curb discretionary spending

From an expense perspective, look for ways to delay or eliminate discretionary spending. This could include plans to renovate a facility or hire a contractor for a program. You also may need to consider contacting vendors to discuss ways to pay certain bills more slowly to time with expected funding.

If you believe staffing adjustments are unavoidable, start by delaying planned hires. Also look at adjusting certain benefits, like retirement plan contributions, prior to adjusting salaries and wages.

How CLA can help

Providing your nonprofit with a weekly flash report and taking a proactive approach to forecasting can help you weather uncertain times and stay true to your mission. Contact our team of industry professionals if you have questions or would like additional information on how to forecast.