Protecting Your Organization’s Cash During Uncertain Times

by | Mar 19, 2020

At NFP Partners, we understand that we are living in very uncertain times. We want each of you to know that we are here for you and, as your finance and accounting partners, want to support you while you recognize the immediate needs of your organization.

We see ourselves as financial experts in nonprofit accounting and because of such, we want to help your organization calculate how best to move forward financially. Please reach out if we can be of any assistance to your nonprofit.

If you answered yes to the question in this graphic, that is great!

We encourage your organization to continue operating as usual, while exercising caution in your spending habits. Be good stewards of the money donated to your organization. Also, spend wisely while continuing the programmatic functions of the organization. Now would not be a good time to run out and buy everyone on staff a new laptop because we truly do not know what tomorrow will bring.

If you answered no to this question, there are two steps to take.

STEP ONE: EVALUATE EXPENSES

This will not be easy, but what about the COVID-19 situation is easy? Expenses should be cut immediately if funding sources have been temporarily put on hold. What does that look like?

  • Look at which specific programs will have their funding temporarily put on hold, or even decreased completely, and cut there first
    • Personnel costs are the biggest expense in any nonprofit. Unfortunately, you must tackle this difficult task. Here are some suggestions.
      • Evaluate if staffing support for the de-funded programs can be redirected to other projects or programs
      • If not, plan a course of action for laying off those employees
      • Is a severance package an option and if so, what can the organization afford?
    • Direct expenses that are related to the de-funded program can be reduced or eliminated
    • Operational expenses that are “extras,” such as travel, conferences, meals, and entertainment can be reduced or eliminated for the next several months. Cut to the bare bones of operational expenses right now
    • If the organization has moved to a virtual work environment, evaluate office expenses and reduce, if possible. This could include internet and telephone services, cleaning services, etc.

STEP TWO: CREATE A CASH FLOW PROJECTION

With suspended or eliminated funding, it is important to know how much cash your organization currently has on hand, and how long the organization can sustain operations. Since we are all uncertain about how long this will last, we will use six months as a good rule of thumb when projecting cash needs.

This second step should be done after you have taken the necessary steps to evaluate and cut back on the expenses as mentioned above.

  • Determine cash on hand by analyzing the following:
    • Calculate how much current cash you have in your liquid bank accounts
    • Determine how much cash is available in investments and determine how long it would take to make those investments liquid
    • Calculate your Accounts Receivable balance and how likely those funds are to be received over the next six months
  • Calculate expenses for the next six months by evaluating the following:
    • Determine which liabilities are due in the next six months that are currently recorded on your books. This can include accounts payable, payroll tax liabilities, and debt payments
    • Take your evaluation of expenses completed in the first step and determine which bare bones operational expenses will need to be paid over the next six months. Remember to include payroll for the staff that will remain working during this time. Additionally, consider the operational expenses needed to keep things going

CASH FLOW PROJECTION – NEXT STEPS

Now, we need to put this all together by using expected cash on hand over the next six months and deduct out the anticipated expenses. The result should give you an idea as to whether your organization can sustain during this time as well as the following:

  • If more measures to cut back will be needed
  • If the organization needs to evaluate the capacity for a line of credit or accessing an existing line of credit
  • Is it worth exploring support for emergency funding from the government or foundations?

We understand things are changing quickly. As your partner, please reach out to us if you have any questions about this or if you would like us to step into the role of figuring this out for you.

 

Take Care!

Stephanie