We’re now almost two years into the COVID-19 pandemic and some encouraging signs of economic recovery are emerging both in levels of employment and in revenue. That’s why we believe it’s time to put that old saying ‘never let a good crisis go to waste’ into practice. For our nonprofit clients, we think that means it is the perfect time to think ahead.
Repairing, Restructuring, and Recovering
Let’s consider the most significant negative impact brought on by the pandemic. Clearly, loss of revenue was the most severe, often as an existential threat to ongoing operations. Many nonprofits have a disproportionate percentage of their annual revenues tied up in one or two signature events such as galas or other large-scale public gatherings. When the COVID mandates resulted in the events being canceled, the anticipated revenues budgeted for programming and operations largely disappeared. Quick thinking nonprofits often tried to make changes on the fly holding virtual events, appealing for contributions to cover costs, and even coming up with entirely new services. Still, these were seldom sufficient to allow for operations to continue at their pre-pandemic levels.
An example helps illuminate this scenario: We work with an educational facility caring for young children from low-income families that charges tuition. COVID cut their enrollment revenue, which was partially offset by an increase in government subsidies. Their services were delivered entirely in-classroom, so when many employees left and stayed out, they had real difficulties delivering the contracted levels of service. Even with enormous patience by management and staff, and a lot of “out of the box” thinking to keep their doors open with fewer resources, this nonprofit faced challenges they had to work out in real-time – like keeping the lights on, retooling budgets, reviewing compliance and staffing levels, as well as taking timely advantage of government loan programs (e.g., Paycheck Protection Program Loan and Economic Injury Disaster Loan) and other subsidies.
Preparing for the Unknown
What we saw in this instance, and what other nonprofits facing deep revenue losses can learn from, is a new way of thinking that can come into play to weather the next crisis – which, as we now know, can happen at any time.
- Executive and financial management should reexamine budget projections to assess the risk of over-relying on revenues from single sources. What is the impact of the sudden loss of a major grant donor contribution or a major revenue-producing event such as a gala?
- Management and the board should use this time to review their relationships to include, perhaps, a post-crisis evaluation of board members’ skills and abilities. How can they best help, and where is their advice of most use?
- Build a disaster recovery plan. If COVID-19 happened again next year, could your nonprofit be back up and running off-site? What resources are needed to deliver 100% of the organization’s programs with only 80% or fewer resources? What number of employees can or will work remotely?
- Create an operating reserve fund of up to a year’s revenue. Such an operating reserve fund could easily take 2-5 years to build up, so the necessary measures to earmark and set aside such funds needs to be put into place, along with the discipline to comply with the policy and stay the course. This concept can be a great dialog for management to have with its board of directors and accountants.
- Review office space leases and other long-term commitments to gain a clear-eyed view of what is absolutely required and what is not. What was learned from the pandemic regarding office space, equipment, and staffing levels should now be rethought and acted on.
We are here to help
It is often said that in business, the only sin is to do nothing. Savvy nonprofit managers know this too and are looking for ways to put imaginative and effective new strategies to work now to help them prepare and be ready for what may come in the future. That is thinking ahead.