LGT's Profit Sense

As the new paradigm of the global pandemic sets in, many not-for-profit organizations are pivoting to adapt and cope. Many organizations are making changes to their services, operations, and fundraising activities.

Sound financial management practices and analyses can help provide the foundation for decision-making about operations and services. They help boards and leadership teams quickly understand the financial impact of lost revenue on operations and how to address necessary expense reductions. Some typical practices are listed below:

Cash Flow Projections

Have you lost some of your funding sources or had to cancel or postpone events? Your not-for-profit’s cash flow likely looks vastly different than it did at the beginning of the year. Understanding your organization’s cash position is fundamental to knowing how long and how effectively your organization can operate during this crisis.

Creating cash flow projections for a forward six-month period showing inflows and outflows provides leadership and the board with valuable information as they consider options regarding operations, staffing, leases, and other expenses.

The quick or current ratio calculates whether your organization has enough cash on hand to pay its bills today.

Other ratios can factor in cash reserves, receivables, and restricted gifts for planning purposes.

Scenario Planning

While cash flow projections focus on the cash needed to meet immediate expenses, they can be used to build scenario plans that examine the revenue streams you’ll need to maintain operations over time and fulfill your organization’s mission.

Along with changes in funding, your operations, services, and staffing levels likely changed as well. Therefore, it is important to develop scenario plans that incorporate updated development outlooks, budgets, and cash flow projections. These plans can outline worst-case, middle-case, and best-case scenarios for funding your organization.

Operations Analysis by Impact and Profitability

Challenging financial situations can drive changes to your organization’s mission as well as its operations. Your board and leadership team should view your organization’s mission in light of today’s challenges and how best to have impact in today’s environment. This can entail changes to service delivery, operations, programs, or staffing levels.

Individually analyzing operations and services by their impact, costs, and profitability enables leadership to assess each aspect by its total contribution to the organization and determine whether it serves the overarching mission. This type of analysis directs decisions on making changes to programs and operations that will benefit the organization’s overall viability.

Compliance Reporting

Although some deadlines have shifted, not-for-profits still need to complete and file periodic financial reports. Creditors, banks, grant makers, foundations, government agencies, and private donors all share a financial interest in the success of your not-for-profit and its ability to achieve its mission. Creditors and grant makers require quarterly or other financial statements to understand how funds are being used.

Donors want to see annual reports that address the challenges your organization faces and the changes you are making in response to the pandemic.

Providing timely, accurate financial information enables leadership to explain the impact of the COVID-19 crisis on your organization, and how your financial management has adapted to address needed changes in services and programs. It also demonstrates your commitment to ensure that your not-for-profit can adapt and address today’s challenges.