On today’s Nonprofit MBA Podcast, Host Stephen Halasnik from Financing Solutions, a leading provider of Lines of credit for nonprofits, we will be speaking with Dr Ron Dale Tomkins about how your Nonprofit should be preparing for a recession.
Dr. Ron Dale Tomkins is a Certified Management Accountant associated with the Institute of Management Accountants. He holds a Ph.D. in Higher Education Policy (Buffalo), MBA in Finance and Accounting (SUNY Institute), attended Harvard University Strategy and Innovation Extension, and is a member of the Center for Creative Leadership.
Dr. Ron currently owns TurnAround NonProfit Coaching to help NonProfit leadership and their teams. Dr’s Ron recent book called ‘Doing Bad at Doing Good’ is available on Amazon. It looks at very good and very bad nonprofits in New York City.
What’s your 90-day plan
The very first thing you should be doing is understanding what is your 90-day cash situation. Do you have enough money to get through the next 90 days and even if your runway is longer, start cutting your expenses now. For now, and the foreseeable future, you are going to have to manage cash flow and planning is a big part of that. In many cases, rent is one of a nonprofits biggest expenses so one option is to talk to your landlord and let them know you will need a reduction.
Payroll is also a big expense
At many nonprofits, payroll is also a very large expense but reducing payroll is a moral question according to Dr. Ron, so letting people go can be extremely difficult plus many of your employees really need their jobs that your nonprofit provides. If you do have to let people go, consider other options first. Can you furlough them for a few weeks so they can collect unemployment? Can you have some or all of your staff work 4-day work weeks at 4/5th of their pay? Can everyone take a pay cut to keep more people on board? Can you partner with another nonprofit and have your people work at their location 50% of the time? It’s all about creativity.
Dr. Ron suggests that you certainly must keep your best people because not only does your mission have to continue but a recession will not last forever.
You need to buy some time
A Nonprofit Leader should be looking for a loan, a line of credit from either a state, federal government or another financial institution, or a large donation. Dr. Ron is seeing too many boards recommend accelerating small gift donations. Dr. Ron often sees this as a waste of time.
When it comes to Large grants, donations or loans, you need to get that process going early because you want to be first in the queue. Get that process moving forward now.
Also, it’s a tough decision but are their programs that just can’t be done anymore because they cost too much and by cutting them, will it help the other programs survive.
Recessions last 2-3 times longer then you think they will
Stephen Halasnik from Financing Solutions talked about his experience with 2 of his own companies during the 2001 and 2008 recessions. Mr. Halasnik talked about how the recessions lasted so much longer then he thought it would and that the 2020 recession was going to really be bad.
It is important that you start thinking and planning about what to do in the worst-case scenario.
Get your board and other experts involved
In any type of survival, you are better together than separate. Ideas can come from anywhere and anyone. A good first action plan is to get your board together and work on a plan for 3, 6, 12+ months out. Have measurements and monitor them often. Recessions are when companies and nonprofits get good at what they do and as the leader, you need to make sure your board understands the sense of urgency about the future.
Here are some other ideas:
- Most nonprofit do not know that it is illegal to miss payroll
- You should have complete transparency with your staff
- Don’t pay your bills. Just pay them a little later.
- Go back to your donors and see if they might prepay now instead of later.
Take good care of yourself. People are counting on you
Finally, as the leader, you need to take really good care of yourself especially if you are so passionate about your cause that it overwhelms your thinking and health. You are of no value to your team/cause if you are worn out and can’t lead. This recession is going to last a long time or at least you need to think that way. Now is especially important for you to eat right, exercise, get a good night’s sleep, and remember to stay balanced.