This story came under the headline, “A Reminder about Funding Overdependence,” which is a hot topic for nonprofit leaders. Concerns about overdependence on a particular revenue source have led many organizations to explore social enterprise models, some successfully and others not.
The real issue here is a larger one of revenue continuity. Every for-profit and nonprofit organization must have a plan for it.
It's not enough to generate new revenue sources and expand on current ones. Boards and executive management also need to develop “what if” plans. What if we lose our funding? Can the organization survive as a smaller entity? None of us like to think about the negative, so there's a natural tendency to completely avoid this conversation.
How do we begin to formulate a “what if” plan?
1) There needs to be a recognition that sometimes bad things happen, and we have to deal with them. We don't just throw in the towel. We don't get stuck in anger toward grantmakers, donors, and governments for not doing enough to help. Understanding this reality shouldn't be difficult for an organization that is changing lives and serving communities through its work. A smaller organization going forward is better than no organization at all.
2) There needs to be a discipline to make difficult decisions under pressure. The most successful managers will embrace this as a responsibility of the job. It's no fun, but it's necessary.
A major reduction in funding almost always means a loss of jobs – jobs of loyal, dedicated staff. Transitioning an organization under these circumstances takes compassion along with discipline. Ultimately, compassion for the organization's constituents – those the organization serves – must override the concern for individuals who will need to find other jobs.
It's not about being ruthless; it's about survival. And saving an organization is not for the faint of heart.
3) There needs to be a deep understanding of the organization's financial condition, including cash flow and cash reserves. This will dictate how long the organization will have to make adjustments. A six-month cushion will be much less disruptive than a two-month reserve.
As unpleasant as it is, it's a good fiduciary practice to prepare for hard times. If things go badly, closing your doors shouldn't be a foregone conclusion.
Counterpart CFO can help you plan for revenue continuity interruptions. Contact us for a free, no obligation consultation, and we'll identify specific ways we can help you.