A few times every year I get a phone call from a non-profit friend who is experiencing a cash flow issue. The conversation always starts off with a tinge of embarrassment and then quickly morphs into finger pointing and finally ends with a sense of resignation and desperation. I received another one of these phone calls the other day, which reminded me that I’ve been meaning to blog about this subject for quiet some time. The following are a few quick tips on how to handle your non-profit organization’s cash flow crisis.
Remain calm and confident
One of my favorite movie scenes is at the end of Animal House when Kevin Bacon’s character is trying to keep the peace in the middle of the parade-turned-riot when he is shouting, “Remain calm! All is well.”
During a cash flow crunch, it is important for you to remain calm and encourage everyone else in the organization (e.g. board volunteers, staff, donors, etc) to do the same.
Why? Simply because . . .
- People don’t follow leaders who aren’t confident and composed
- Panic and fear spread quicker than the flu
- People don’t typically make good decisions when they are panicked and fearful
Develop a 90 day plan
You have lots of short-term options that will help bridge your organization through a cash flow crisis. The following is a short list of some of those options:
- Secure a loan (this can be a traditional short-term loan from the bank or a promissory note from a donor)
- Search your donor database for LYBUNTs (e.g. lapsed, former donors) and ask them to renew their support
- Meet with your largest donors and ask them to make another contribution
- Look at your accounts receivable list and ask those donors if they would consider making a pledge payment sooner than they had indicated on their pledge card
- Ask board members to make another contribution
- Prioritize which outstanding invoices need to be paid now and which ones can wait
- Work with your Finance Committee (or key board volunteers) to develop a new budget plan for your new realities (or develop multiple budgets for a variety of revenue scenarios)
- Use unpaid furlough days with some staff to temporarily reduce payroll expenses (be cognizant of what this will do to morale and possible employee turnover)
I wrote a blog post titled “So, your non-profit cannot make its payroll obligation” a few years ago about some of these options. You might want to click-through to read more.
Understand what caused the problem
If I’ve seen it once, I’ve seen it a number of times . . . board volunteers want to hold someone accountable after the crisis passes. In my opinion, the best way to survive this dynamic is to be able to point to:
- Your calm leadership during the crisis
- Your role in developing the short-term plan
- Your understanding of what caused the problem
- Your commitment to fixing the things that cause the problem
There is a fine line between assessment and finger pointing in these situations. Whatever you do, avoid finger pointing because your board of directors will interpret it as “not taking responsibility“.
There isn’t a right or wrong way to undertake an assessment, but my suggestion is that you do it with many people sitting around the table. The more eyes you have looking at this situation, the more likely you will be to see all sides of the problem. Consider involving staff who play some role in financial management, board volunteers with a background in finance, and possibly even an external consultant who can come at this with fresh eyes.
Develop a long-term plan
Now that you’ve made it through the crisis and have a firm understanding of what caused it, it is important have a new long-term plan that keeps you from ending up back from where you just came.
As with the last section, I strongly suggest you don’t do this alone. Your plan will have more credibility if many participated in its creation. Remember, the board will look skeptically at any plan that is developed by the same people who they perceive as having played a role in creating the original crisis. Involving fresh faces with lots of credibility helps address this dynamic.
Your plan will be unique to your organization and your situation; however, the following are just a few “fixes” I’ve personally seen embraced more often than not:
- Making revisions to the resource development plan (e.g. adding more to the fundraising plan)
- Making process changes to the budget construction process
- Making process changes to billing/invoicing donors and grant providers
- Changing how the board monitors/oversees the finances
- Undertaking a re-organization of the company focused on staff/payroll reduction
Well, good luck with your cash flow crisis. Hopefully, these big picture suggestions are helpful and get you pointed in the right direction. If you have any ideas or experiences that you wish to share, please do so in the comment box below. We can all learn from each other.
Here’s to your health!
Erik Anderson
Founder & President, The Healthy Non-Profit LLC
www.thehealthynonprofit.com
erik@thehealthynonprofit.com
http://twitter.com/#!/eanderson847
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The people closest to your mission are board and staff members. So, when the organization is short on cash and cannot meet its payroll obligations, it is only natural to ask board members to dig a little deeper.
Don’t pass the basket and ask smaller, low capacity donors. Identify your larger, more capable donors and schedule an in-person meeting to explain what has occurred and ask for their support.
Accounts receivable can be any number of the following individuals/entities:
If your organization finds itself in this mess, then the bank is probably not extending you additional credit. While managing your cash flow on the backs of your vendors is a bad thing to do, sometimes life presents you with a bunch of bad options.