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Not-For-Profit Alert: Sustainability & Liquidity in a Crisis

April 21, 2020
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The effects of the Coronavirus are continuing to cause economic and business impacts that will have both immediate and long-term consequences. As a result, not-for-profit organizations should be evaluating appropriate action steps to limit their exposure and maintain program sustainability. However, this may be especially difficult during these hard times when people may need to rely on your not-for-profit’s critical services and programs within their communities. Below are some considerations to aid in your organization’s financial resiliency:

Understanding Your Situation:

Now is the time to go back to basics and ensure that the organization is as prepared as possible to survive and thrive in any outcome. Review your organization’s current financial position and identify key risks and vulnerabilities. All businesses need a strong plan to weather the types of changes occurring in today’s world. For those with business continuity plans, assess the strategies and seek ways to implement those initiatives where possible. For those without, utilize this time to create a plan focusing on best practices and strategies learned not only from your experience, but also from those of your peers.

Cash Flow Modeling:

This pandemic’s global reach and speed has caused even the largest of companies to slash their spending and augment their balance sheets, demonstrating that once again “cash is king,” especially in times of crisis. If you haven’t done a cash flow projection recently, now is the time. An accurate projection is necessary for governance members and management of the organization to determine when cash shortages may occur and to plan for an appropriate response. The primary objective of cash flow forecasting is to assist you with managing liquidity and to provide vision as to whether the entity has the necessary cash to meet its obligations and avoid funding issues. This cash forecast needs to be frequently evaluated on a consistent basis, and updated as often as necessary. Proper use of cash forecasting will strengthen decision making, identify potential shortfalls and cash needs, and provide you with the opportunity to proactively manage potential issues. A best practice generally utilizes a rolling 13-week forecast. While the most accurate information is this week or next, the rolling forecast allows you to adjust the forecast’s underlying assumptions on a weekly basis, creating the ability to adjust real time to evolving environmental and business factors. It is important to consider the impact of any emergency relief funds into the cash flow projection (i.e. Payroll Protection Program funds).

Plan of Action:

Organizations should develop business strategies in conjunction with its cash flow modeling and identify business risks occurring as a result of this pandemic. Multiple scenarios should be utilized and factored in determining the various assumptions that may impact the organization, both in the short-term and long-term. Many organizations are assessing areas of their business by which they may be able to reduce costs and optimize cash savings. In order to accomplish this goal, a prioritization of what is deemed critical vs. non-critical expenditures to serve the organization, programmatic mission, and community must be assessed. Such areas for consideration often include postponement of long-term commitments, reduction of staff or furloughs, deferral of pension plan contributions, negotiation of certain rent or lease obligations, or extension of certain vendor payments where possible.

It’s important to remember that during these unknown times, strategies and modeling must be reviewed often and compared to relevant data and experience to date. Not-for-profit management and governance must be nimble and able to recalibrate planned action items in a timely manner to mitigate exposure and ensure long-term sustainability for the organization.

Citrin Cooperman remains committed to ensuring we do our part to keep you up-to-date on the latest information available during these difficult times. Please reach out to your dedicated Citrin Cooperman Not-for-Profit Practice team at any time, as we are ready and able to assist you and your organization.