Assessing the Financial Health of your Nonprofit during COVID

by | Aug 24, 2020 | Announcements

Be sure to read this excellent article from Blue Avocado about assessing the financial health of your nonprofit during COVID.

by Suja Amir MPA on August 18, 2020

Covid-19 has created dramatic changes in the financial markets. Nonprofits such as private schools, universities, museums, religious organizations, and even hospitals have seen unforeseen shifts in operations due to quarantine.

While the Coronavirus Aid, Relief and Economic Security (CARES) Act and other stimulus packages might help, delays and difficulty accessing funds, the economic downturn due to Covid-19, and social distancing restrictions create significant challenges to nonprofits. This article helps point to some unique financial characteristics specific to your organization’s financial structure.

Nonprofits must be able to manage debt, take care of their facilities, and measure liquidity. Liquidity is the amount of cash and assets that a nonprofit can easily convert to case for use.

To understand financial health, there are three basic factors involved for nonprofits of any size.

  1. Cashflow

Cashflow is the money coming into the organization for products, services, and grants.  Cashflow is an important factor for determining sustainability. An organization with three months or less of cash in-hand to cover expenses will have difficulty managing its financial responsibilities.

  1. Daily operating expenses

Daily operating expenses have an impact on both business and program operations. For nonprofits, these would include administrative and fundraising expenses. The daily operating expenses can also include, but are not limited to, rent, utilities, and other established expenses of the organization.

  1. Debt

Unexpected deficits and/or difficulty making debt payments are figures that need to be tracked and cannot be ignored.  Example of debt are capital expenditures, loans, and bonds.

Managing Your Cash

If your organization has less than three months of cash flow, finding ways to decrease daily operating expenses and debt should be a priority.

Here are some things to think about going forward:

Consider shortening time period for financial reviews.

Based on the size and issues of your organization, you might think of shortening the time period between reviews to monthly or even less. Review the budget frequently to check that you are meeting goals. This will help in identifying any unexpected loss in revenue or increase in expenses and allow your organization to respond agilely.

Request funds.

Before Covid-19 arrived at the scene, you likely had 2020 fundraising events planned, with deposits already paid for venues and other expenses such as catering, marketing, online ticket sales, or equipment. Unfortunately, event contracts often specify a limited time frame for returning deposits, and some expenses cannot be recovered. Even where that is the case, follow up with vendors and ask them to relax their policies in light of the current situation. You may be able to retrieve some of what you put down. Check in also with those who had agreed to sponsor your fundraising events. Given the circumstances, they might be willing to donate a part of or even the full pledged amount. Either way, they will appreciate the extra effort in communication.

Request removal of restrictions from grantors.

If you receive restricted grant funds, contact the funders and ask them to remove any restrictions on existing grants. Removal of restrictions can allow funds to be used for the emergent needs of the organization.

Seek interim relief from vendors.

Covid-19 may create hurdles in meeting organizational debt payments or create an unexpected operating deficit. Be proactive in reaching out to your lenders. They may be able to provide interim relief.

Read the rest of the article here.