Stabilizing Your Organization in a Crisis
In light of the ever-changing environment brought on by COVID 19, DirectHer has introduced (Social) Distance Learning Fridays. It’s our chance to deliver our DirectHers a nugget of knowledge to help navigate these times. And while the medium changes week to week (find much of this over on our IGTV and IG Lives), today we are bringing an accounting based blog from two of our Facilitators: Adrienne Wong and Justine McDonald.
It’s hard to believe that we are about to enter week #6 of social distancing. It’s even more daunting to realize that this new “norm” may continue for some time! While that is the case, we are starting to see how we can manage and stabilize our operations. Within our DirectHer community, this has been at the forefront of our minds, and we are examining different ways that we can deliver content and provide you with the support you need as you navigate through this global crisis. In this blog post, we wanted to share with you some great tips and resources relating to crisis response and management. Remember - we are all in this together!
According to PwC Canada’s COVID-19 Response webpage, there are three phases of the Crisis Response Lifecycle:
Mobilize - This is the phase where organizations set their communication strategy and implement their crisis management plan;
Stabilize - During this phase, organizations are focused on forecasting and are evaluating their short-term liquidity, as well as looking for opportunities to transform;
Strategize - Organizations who have managed through the first two phases may be well positioned to innovate and find new ways to go to market. By transforming their cost structure, these organizations may emerge stronger from the crisis.
The majority of organizations are currently in the “Stabilize” phase and now, more than ever, cash is queen! With so much attention being placed on cash flows and liquidity, we thought we’d summarize a few key points to consider as part of your overall cash management strategy:
Focus on your forecasts:
Cash flow forecasts will provide relevant information for real-time decision making, and are an important tool to understand your organization’s cash requirements. A cash flow forecast is very different compared to a traditional forecast. Traditional forecasting methods often look to historical revenues and expenses to predict the future, but given we are living in an unprecedented time, historical results are no longer a relevant measure of future performance. As part of the cash flow forecasting process, you should compare your forecasted cash collections to the forecasted cash payments. This will help you to understand whether the organization is able to generate positive cash flows, or whether it could be running into liquidity issues by the end of the period.
Plan for different scenarios - These could include best and worst case scenarios, break-even scenarios, or modelling forecasts based on the announcements of government grants, extensions of filing deadlines, or even prolonged periods of social distancing and locked down conditions. Scenarios should be updated as new information becomes available. By understanding how different scenarios could impact your operations and funding base, you will be better equipped to make decisions.
Cash flow forecast timing - Cash flow forecasts are typically used to evaluate cash receipts and disbursements over a shorter-term period, ranging anywhere between a daily to monthly basis. A recommended time period that will help you to understand your operations (and not have this become a cumbersome exercise) would be to use a weekly cash flow forecast.
Consider how you can conserve your cash:
Identify cash flow levers by reviewing and categorizing your costs as either “essential” or “non-essential”. Payroll costs would typically be viewed as “essential” (or necessary to operations) while marketing costs could be viewed as “non-essential”. Take a closer look at all of the “non-essential” costs and determine whether those costs can be reduced, deferred to a later period, or eliminated altogether as this will help to reduce any non-essential spending in the short term.
Identify opportunities for cash enhancements by performing a detailed review of your organization’s reserve accounts or fund balances. There may be unrestricted fund balances available which could be used towards general operations. Some organizations have an internally restricted fund designated for unforeseen circumstances or emergencies. This would be a time to draw upon those funds. In either situation, you should ensure that you have board approval to utilize those funds.
Review any accounts receivable or opportunities to invoice/bill. While earning regular revenue from sales may not be a significant day-to-day activity for an NPO, there may be some funds, grants, or donations owing to your organization. Now would be a good time to follow up and assess the collection of those outstanding funds to help generate cash flow as well as secure these funds before others try to delay payments.
Payment deferrals have been granted by certain government mandates and various financial institutions, such as filing extensions for income taxes and GST/HST and deferred mortgage payments (note that if you are anticipating a refund on these types of tax filings, it would be prudent to complete your filings as soon as possible to collect on these funds). However it is important to remember that while payment deferrals would provide cash flow in the short term, these expenses will still need to be paid at a certain time in the future. Timing of these repayments (such as payments tacked on to the end of the loan term, or lump sum of the full deferment paid in full when they ultimately become due) should be considered in the cash flow forecast.
Have honest and open discussions with funders/donors:
Review current funding agreements to understand how funding from your donors has been used to date, and whether any funds may need to be returned to the donor in the case that your organization is unable to meet the terms of the funding agreement. Ensure you are communicating with your donors and letting them know what is going on in your organization and how you are mitigating risk.
Evaluate future pledge commitments and have upfront discussions with those funders/donors as to the timing and availability of those pledges. For example, will pledges due 4 months from now be honored? Having these discussions will be key to managing your organization’s future cash flows.
Be prepared for questions. Cash flow forecasting and multiple scenario analysis will arm you with the information that you’ll need to have these conversations with your donors/funders. Make sure you have a plan so that you can effectively communicate what your ask is, as well as the expected timeline of when you expect your organization to stabilize and recover.
While this blog post summarizes some key considerations for your cash management strategy, please feel free to visit these sites for additional resources:
PwC Canada. The website also provides free access to two hour-long webcasts, “Crisis Management for Canadian NPO boards and management teams - Parts 1 and 2” which outline the latest changes to government subsidy programs, tax relief updates, and ways to improve your employees’ mental health and well-being.