Here’s Why Cash is King for Your Nonprofit During the 2020/2021 Economic Crisis
In our latest blog post, [Chills, Thrills, and Dollar Bill, Part 1] we talked about what a cash flow is, and why it's important for your nonprofit. Now let's dive deeper into 12 ways to steward your organization’s position during tough times.
Automate earned revenue whenever possible. If you’re collecting fees from individuals for a service, you should be automating that process! Why? It’s key to keeping your cash flow level.
Don’t expect pre-2020 levels of institutional funding to return for a while. Word on the street is not to expect grant funding to return to normal in 2021. Understand that your development team’s attention might be better spent on cultivating other sources of revenue besides grants.
Now is the time to try new things. Innovate, test, adapt, test and repeat! Most organizations have some room to deliver an earned revenue model to their constituents. You can no longer afford to wait to diversify your funding streams.
Analyze expenses but don’t analyze to death. What matters is how you deliver on mission. Don’t get analysis paralysis. Know your major buckets of expenses and be prepared to make strategic spending decisions.
Know the difference between ROI (return on investment) and ROS (return on scarcity). ROS is a really interesting way to say opportunity cost. Scarcity is a lack of something; nonprofits often suffer from a “scarcity mindset.” So as you look at your spending, consider: if you choose not to fund certain activities due to concerns around scarcity, what opportunities are being lost as a result? Are you eliminating something from your budget that results in a negative impact to your mission?
Protect Your Cash on Hand. The following tips might seem a little obvious or like a “Risk Management 101” but they are great reminders.
Pay down credit card debt. Organizational credit card debt can really hamstring your ability to save for the future. Wherever possible, if cash allows, pay down your credit cards to avoid paying overly high interest rates.
Obtain line of credit. If you already have a line of credit, KUDOS! But use cautiously. Remember it's a loan you have to pay it back. Right now we're seeing some lending happening at the community bank and credit unions level, but the larger banks are not being so generous. If you can obtain a line of credit, even if it’s small, that could help you get by.
Determine when to use EIDL funds. If you took an Economic Injury Disaster Loan in 2020, proceed with caution. Think of your EIDL money as an internal line of credit. Sit on the money as long as you can and see if you need it. If you’re going to draw on it, have a plan for how you will repay the funds. EIDL funds are still loans. So you and your board should tap into those funds carefully.
Understand FDIC insurance limits on bank accounts. The Federal Government ensures up to $250,000 in bank accounts, so if your organization has more than that in any single bank account, the balance is unprotected. If you want to mitigate that risk, talk to your bank about where you can move your funds to be protected.
Manage risk to investments; focus on capital preservation. You might have already done this in 2020 but talk to your investment advisors and find out more about your asset allocation and the risk exposure for your organization’s investments.
Pro tip: Keep your board in the loop-they have ultimate fiduciary responsibility for your nonprofit. They are on the hook financially and legally, so make sure your board is on board at all times.
To quote Yogi Berra, “if you don’t know where you are going, you might wind up someplace else.”
A keen eye on cash will help you manage your organization more effectively and it will also help your board, leadership and constituents know that you are prepared to move your organization forward regardless of the crazy times we’re living in now.
If you’re looking to dive deeper into planning your 2021 budget and cash flow, our friendly team at Blue Fox is here to help! Give us a call at (321) 233-3311 or email us at firstname.lastname@example.org. We’ll get you sorted! Then you can focus on what really matters: your mission and serving your community.
You can also schedule a free budget consultation: https://calendly.com/chat-with-chantal
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