Breaking news this week reported the closing of a homeless clinic in Portland because it lost a third of its funding. Unfortunately, this is not an isolated event in the nonprofit sector, and it highlights the need to plan for adversity.
This story came under the headline, “A Reminder about Funding Overdependence,” a hot topic for nonprofit leaders. Concerns about over-dependence 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 organization must have a plan for it.
It’s not enough to generate new revenue sources and expand on current ones. Boards and managers 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.
Bad Things Happen
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 grant makers, 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.
Difficult Decisions
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 to plan for adversity.
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.
Understand Your Condition
There needs to be a deep understanding of the organization’s financial condition, including cash flow and cash reserves. This will dictate the urgency of making 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. Better to have a plan for adversity to ensure continuity.
Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFOs specializing in nonprofits. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.