What to do when your funds run low
Many not for profit (NFP) organisations face challenges associated with funding. Relying on government grants, philanthropic donations and fundraising typically means dollars are limited. It is common for NFPs to run on a strict budget for much of the year and cash flow availability can fluctuate depending on the funding cycle and the success or otherwise of achieving the various income streams.
But what do you do when even a tight budget becomes unsustainable? How do you make changes to minimise the risk of insolvency?
You know the work your NFP does is important to the community so it’s time to take decisive action and secure the future of the organisation.
Find out why
When you realise you have an issue with low funds, the first thing you should do is find out why. What has happened to cause this problem? Were you expecting it, or is it a complete surprise? You must determine the key drivers behind it.
Are you spending more than you used to?
Or are you raising less revenue than previous years?
It’s critical that you uncover the reason, because if you don’t know why, it is highly likely that you will end up in the same position again… even if you do manage to make considerable savings and pull together some funds in the short term. Without a sound understanding of the cause, you have no control over the situation.
Kirsten Forrester, CEO, says,
“We are seeing this more and more often. NFPs start to run low on funds and the struggle begins. Finding out the cause of the financial shortage is really important.
Sometimes they might have lost a funding stream, or their fundraising or revenue raising activities aren’t performing to expectations… sometimes there are staffing issues.
We know this is tough, making decisions that might impact individuals, but for the longevity of the organisation, the management team needs to be brave and act earlier rather than later.”
There’s no time to sit back and hope that the situation will correct itself. The quicker decisions are made, and savings implemented, the better for the organisation and for the community that you serve. Kirsten continues,
“The non-profit environment can change quite frequently and it’s not uncommon these days for an organisation to lose a key funding source, often with reasonably scant notice. If you know that this is happening to you then our advice is to act quickly!
If the funding that you’ve lost supported three positions within the business, then you should remove those positions promptly. You have to move fast… you should not spend money that you can’t afford… if other revenue streams haven’t already been secured, you need to make the difficult decisions rather than risk the entire company becoming insolvent.”
While you are looking at the staffing structure within the organisation it’s also valuable to review your overall efficiency.
Are you as efficient as you could be? Are the roles in your business fit for purpose today? If your organisation is twenty, thirty or forty years old… are the roles you created decades ago still relevant?
If not, then perhaps you could consider offering some redundancies. Kirsten explains how this could work.
“If you know you are losing funding, you might be in a position to make someone redundant from within that funding envelope – if a redundancy payment isn’t excluded in the funding agreement.
You should get some formal notice that you are losing the funding – even if it’s as short as six weeks, you can take decisive action to minimise the impact and keep the organisation afloat. Redundancies can quickly solve the problem if you haven’t already found a replacement source of funds.
However, if you are going to make roles redundant, make sure that you can meet the redundancy obligations and pay out the leave entitlements.”
Along with staffing efficiencies, there are technological opportunities that can save you money. Kirsten suggests some perfect examples of a modern technology solution.
“You might not need a bookkeeper sitting in the office several days a week if you use technology like ReceiptBank to automate your accounts payable data entry. If you have modern tools and processes, that can help slim down staffing costs.
You could also look at travel expenses… you can immediately save money by getting on the phone rather than the plane… create a Zoom account or Google Hangouts… there are plenty of options available that can help you do your business. Learn to meet remotely – I’ve seen many organisations do this really effectively.
Of course, you might still need to do some face to face… if you are trying to influence government or when you have to connect with new partners, but overall you will save money by hosting your meetings online.”
Staffing costs will usually make up 70% or more of an organisation’s expenses, so this is an obvious place to look when you need to cut costs. Outsourcing different departments such as marketing, finance, human resources, IT or design will give you the chance to balance the amount of work required based on what is appropriate to the business… you just want what you need to operate right now.
You don’t necessarily need full time staff in each of those areas.
Once you have outsourced, you also have the flexibility to scale up or down as your business needs change… without being fixed to a permanent staff member. Kirsten understands how an outsourced finance team can really benefit an organisation.
“When it comes to outsourced financials, you probably don’t need as much bookkeeping work done as you are assigning in-house hours for… it’s more likely that you need better productivity from the dollars spent.
This relies on a CEO being willing to think outside the box. Moving away from having everything in-house and available in an instant might take some time to get used to… but by being proactive about what your needs are, an outsourced team can supply you with all the information you need on a regular cycle and do it more efficiently.”
Other income streams
The other side of this equation is to secure new income. You need to start looking for other opportunities.
Perhaps you could seek corporate partnerships, or new grants or engage in different fundraising activities or fee-for-service opportunities. Although, you might need to look at your staffing resources in this instance, too. Kirsten says,
“Keep in mind that when you start to look for new funding opportunities, the staff you currently have employed might not be the best team to help you find new revenue. You want to make sure you have the right people for the job you have ahead of you.
Make sure the business is staffed properly for the position you find yourself in now. If you need to fundraise or write grants it might be better to contract people in who can do this, rather than employ full-time team members.”
Is a merger an option?
Finally, there’s one more option you might be able to consider. If there is another organisation with a similar mission or perhaps with a compatible service, a merger could be an economical way to guarantee the continuation of your NFP.
Joining forces would certainly save running costs and even though some roles might become redundant, the people you serve will be grateful that you have made the difficult decisions when you can still help them.
Kirsten and the team at Accounting For Good know that funding challenges can cause unwanted stress and be hard to overcome. Kirsten concludes,
“I have seen a number of organisations in recent years lose funding streams and not reorganise their staffing to suit their new reduced budget, and it does push them close to the edge of viability.
So I know our advice here might sound harsh, especially to a generally friendly sector like non-profits… but it is the biggest cost for an organisation. The best solution of course is to get more income so the organisation can keep on track – but that can be much harder to achieve, especially in the short term.”