A few times every year I get a phone call from a non-profit friend who is experiencing a cash flow issue. The conversation always starts off with a tinge of embarrassment and then quickly morphs into finger pointing and finally ends with a sense of resignation and desperation. I received another one of these phone calls the other day, which reminded me that I’ve been meaning to blog about this subject for quiet some time. The following are a few quick tips on how to handle your non-profit organization’s cash flow crisis.
Remain calm and confident
One of my favorite movie scenes is at the end of Animal House when Kevin Bacon’s character is trying to keep the peace in the middle of the parade-turned-riot when he is shouting, “Remain calm! All is well.”
During a cash flow crunch, it is important for you to remain calm and encourage everyone else in the organization (e.g. board volunteers, staff, donors, etc) to do the same.
Why? Simply because . . .
- People don’t follow leaders who aren’t confident and composed
- Panic and fear spread quicker than the flu
- People don’t typically make good decisions when they are panicked and fearful
Develop a 90 day plan
You have lots of short-term options that will help bridge your organization through a cash flow crisis. The following is a short list of some of those options:
- Secure a loan (this can be a traditional short-term loan from the bank or a promissory note from a donor)
- Search your donor database for LYBUNTs (e.g. lapsed, former donors) and ask them to renew their support
- Meet with your largest donors and ask them to make another contribution
- Look at your accounts receivable list and ask those donors if they would consider making a pledge payment sooner than they had indicated on their pledge card
- Ask board members to make another contribution
- Prioritize which outstanding invoices need to be paid now and which ones can wait
- Work with your Finance Committee (or key board volunteers) to develop a new budget plan for your new realities (or develop multiple budgets for a variety of revenue scenarios)
- Use unpaid furlough days with some staff to temporarily reduce payroll expenses (be cognizant of what this will do to morale and possible employee turnover)
I wrote a blog post titled “So, your non-profit cannot make its payroll obligation” a few years ago about some of these options. You might want to click-through to read more.
Understand what caused the problem
If I’ve seen it once, I’ve seen it a number of times . . . board volunteers want to hold someone accountable after the crisis passes. In my opinion, the best way to survive this dynamic is to be able to point to:
- Your calm leadership during the crisis
- Your role in developing the short-term plan
- Your understanding of what caused the problem
- Your commitment to fixing the things that cause the problem
There is a fine line between assessment and finger pointing in these situations. Whatever you do, avoid finger pointing because your board of directors will interpret it as “not taking responsibility“.
There isn’t a right or wrong way to undertake an assessment, but my suggestion is that you do it with many people sitting around the table. The more eyes you have looking at this situation, the more likely you will be to see all sides of the problem. Consider involving staff who play some role in financial management, board volunteers with a background in finance, and possibly even an external consultant who can come at this with fresh eyes.
Develop a long-term plan
Now that you’ve made it through the crisis and have a firm understanding of what caused it, it is important have a new long-term plan that keeps you from ending up back from where you just came.
As with the last section, I strongly suggest you don’t do this alone. Your plan will have more credibility if many participated in its creation. Remember, the board will look skeptically at any plan that is developed by the same people who they perceive as having played a role in creating the original crisis. Involving fresh faces with lots of credibility helps address this dynamic.
Your plan will be unique to your organization and your situation; however, the following are just a few “fixes” I’ve personally seen embraced more often than not:
- Making revisions to the resource development plan (e.g. adding more to the fundraising plan)
- Making process changes to the budget construction process
- Making process changes to billing/invoicing donors and grant providers
- Changing how the board monitors/oversees the finances
- Undertaking a re-organization of the company focused on staff/payroll reduction
Well, good luck with your cash flow crisis. Hopefully, these big picture suggestions are helpful and get you pointed in the right direction. If you have any ideas or experiences that you wish to share, please do so in the comment box below. We can all learn from each other.
Here’s to your health!
Founder & President, The Healthy Non-Profit LLC
My local United Way published a brochure titled “Help for Hard Times Guide” as a way to help people with their financial decisions during tough economic times. Yesterday, I came across a copy of that document and the following quote on the inside panel grabbed my attention:
“Reduced income is going to require expert money management. This checklist will help you get started.”
While this is as obvious as the nose on your face, it struck me that this is also the case for non-profit organizations who are dealing with falling revenue. So, just out of curiosity, I decided to scan the checklist and see if there was any good advice that might also apply to non-profits.
The bolded text is the United Way’s advice, and the italics text were the thought I had while reading:
- Determine your financial resources. What a great idea. Make a list of all the agency’s “resources” and determine what can be maximized and leveraged. Even more important might be to review all revenue streams and circle back around to those donors and funders for personal conversations about their support and if they can do more to help.
- Plan a realistic budget. While this is always a good idea, I’ve seen too many non-profit budgets with “plug numbers”. During tough times, an extra special dose of reality is probably sound advice. Real numbers with real strategies behind those revenue numbers.
- Stop all use of credit. This might be difficult to do, but it is still sound advice. How many times have you seen a non-profit dig itself into a hole that it can’t crawl out of all in the name of “tough times”.
- Alert your mortgage holder or landlord. Yes, engaging the bank or landlord might open up unforeseen opportunities. It might engage a stakeholder in a fruitful, solution-oriented discussion and you might see things that weren’t obvious to you.
- Alert your utilities. Same thought as the previous bullet point. There might be some payment plan options that you weren’t aware of. They might even be able to help you better understand how to reduce your agency’s usage and save money.
- Alert creditors. Ditto . . . same as the last two thoughts.
- Set priorities. Sometimes there are more accounts payable than there are accounts receivable. Right? Well, if and when this happens, it is probably smart to know what gets paid first.
- Cancel unnecessary purchases/services. We all have things that we can live without (e.g. cable service, newspaper subscriptions, etc). Surely, the same is true for your agency. However, when we get used to things, we tend to forget that they aren’t essential. Engaging volunteers and an outside set of eyes might be a very valuable exercise for a non-profit executive director.
- Consider refinancing. Restructuring loans and stretching payments over a longer period of time might free up some working capital during lean years.
- Sell unnecessary items. Determining which assets are essential to the mission today versus what you might be sitting on for tomorrow (e.g. vacant land, old office furniture, etc), might create some working capital and make your cash flow situation a little easier.
Impressive . . . nice job United Way! Not only did you create a good resource for people in the unemployment line, but you also created a nice checklist for struggling non-profit agencies.
Of course, these are all temporary fixes because it is difficult to live forever with inadequate resources. Once these adjustments are made for survival, it is advisable to quickly pivot to engage your agency’s donors, board members, and volunteer supports in creating a resource development plan. This ensures that your focus isn’t just on managing what’s left and instead is on developing goals and strategies to secure the necessary funding and get back to a place where you’re thriving and mission-focused.
What additional tips would you add to the United Way’s punch list that I shared with you? Please scroll down and use the comment box below to share some best practices because we can all learn from each other.
Here’s to your health!
Founder & President, The Healthy Non-Profit LLC