How to Rebuild Your Nonprofit’s Finances During COVID-19

We’ve all been hit hard by COVID. Every nonprofit I know has experienced some kind of negative financial impact because of the pandemic. Expenses went up as cleaning guidelines got stricter. Your nonprofit may have had to invest heavily in personal protection equipment. Revenues are down as community events were cancelled. Downsizing and layoffs are common. Nonprofits today have even fewer resources than before to meet the increased demand for services caused by the economic downturn. Organizational wealth is decreasing as agencies tap into their reserves, if they had them, and sell off assets. And, although we see an end, the pandemic continues to go on. How do you rebuild your nonprofit’s finances after such a prolonged, hard hit?

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For those auditory and person-to-person learners, I talk about how to recover from being poor in my free, online training From Poor to Prosperous: How to Grow Your Nonprofit in Six Essential Steps which can be found  

Reverse Negative Agency Financial Trends

In times of decline, most often expenses are more than revenues. At least at the start of the curve. You need to reverse the curve so that more revenues coming in than expenses going out. Ans how do you do that? You have no control over the greater environment. And early conjectures were that the pandemic wouldn’t last long. Now we are almost a year in and probably have more time to go. And then the overall economy needs to catch up.

Hopefully, you had a few months operating reserves, assets you could liquify, and/or a healthy line of credit. You may have now used up your reserves or maxed out your line of credit. And, even though it was difficult, you reduced your overall costs so that you are at least breaking even. But how do you get ahead?

Budget revenues first. Develop your income projections assuming that revenues will continue in the same pattern you see now. If you set unrealistic expectations, you are setting your organization up for failure. Forecast your revenues based on past performance, not budget deficits you want to fill. Then cut them by 5 percent. You want to budget lower than expected revenues in case that happens. 

Next, budget your expenses. And budget 5 percent higher than expected expenses. If your expenses are higher than your revenues, cut your expenses. Yes, it may be painful. But you have to reverse your negative financial trend.

Then make sure you have more than a break-even budget. You may need to revisit expenses again and make more hard choices. Your survival is at stake. You need to start budgeting realistically for positive net income so you can rebuild your reserves and increase your assets.

It may not be pleasant. One of the hardest things I ever had to do as an executive director was cut staff. And, when that didn’t totally stop the bleeding, cut more staff. I was thankful I had a mentor and coach to help me through it.

Get Outside Input

Right now you may be feeling overwhelmed. And desperate. Realize these feelings may cloud your judgement. Get support. Get a second opinion – of someone outside the organization. A mentor, a colleague, a coach, maybe even your auditor – just get someone who can advise you when you’re frazzled from everything COVID has brought with it.

Number one, you are going to need the emotional support. It isn’t easy to make cuts. You are probably tired of making hard decisions.  And overwhelmed by how many of them you’ve had to make. And it isn’t easy to function in an environment that is reeling from the effects of layoff’s, less resources, and increased demand. Now is not the time to be a lone ranger. Now is the time to get outside emotional support.

Number two, high levels of continued stress lead to poor decision-making. Whether you think it or not, your judgement is probably impaired to some extent. And so is everyone else’s in the organization. Including your board. They may be feeling some of the same things you are. Get an outside anchor. If you go it alone, you risk making extremely poor decisions at the expense of your organization.

Change your fundraising mindset

If you are a nonprofit professional, you may think you are raising money for operations. After all, without operations, you cannot deliver your services. And your services are what attracts clients and participants to your organization. You understand your services. To someone who deals with making sure services are delivered effectively to your clients or participants, money for providing services is what it’s all about.

That’s great if you are in charge of operations, finance, or program delivery. And completely wrong if you want to raise money.

With donors, you don’t raise money to meet expenses. You don’t even raise money to provide services. To resonate with donors, you raise money to make an impact on an issue they care about. To fundraise the most effectively, focus on mission, not meeting expenses or providing services or programs. Money and operations and programs and services are just vehicles to make a positive impact in someone’s life. It is the prospect that their donations can help make the positive impact happen that motivates them to give. So, when you are rebuilding financially, the first thing to remember is that meeting operational expenses is a problem donors’, at the root of it, don’t care about. Instead, talk to your donors about the life-changing experiences that happen because of their donation.

Wrapping It Up

Budget for growth: make sure revenues are greater than expenses. As you realize positive net income, build reserves and assets. You’ll probably have to make hard decisions. Get the emotional support you need. And you are probably under tremendous amounts of prolonged stress. Outside input can help you keep in check. As you look ask the community to support you financially, focus on the life-changing experience they can make happen by involving themselves with you. And then watch your nonprofit, albeit slowly, get out of the COVD-19 hole.

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