Many churches and nonprofits have experienced a decline in donations since 2008, however others have rebounded or even thrived during what has been touted as the worst economic recession since the great depression. Why do some organizations flouder and others thrive? Many variables may be present, but here are a few worth considering.
Resilient organizations are highly visible, and have flexible and efficient, even robust business systems. Financial practices are in sinc with economic conditions. Do not tap into restricted funds to solve a short term monetary crisis. Instead they rapidly roll out a contingency plan to meet the prevailing situation. One method for contingency plans as part of a strategic financial plan is the use of trigger point finances. If revenues fall 4%, 8% or 10% short of projections, there should be pre-set specific plan to cut corresponding expenses to balance the budget. Too many organizations wait untiil their finances are down by one-third or one-half to act. By then they are ringing their hands trying to figure out what to do. Though painful cutting expenses is the only way to prevent drowning in a sea of red ink. The next step is to generate additional revenue streams to bolster the organization financially. Some humanitarian organizations manage thrift stores to provide added revenue. Many churches rent part of their facility to various groups. Before adding revenue streams consider your marketing mix. Who are your customers? What are their needs? How much expendible income do they have to spend? Is there a market for your product or service? Is there nearby competition? What investment of time and resources is required to operate the new revenue stream? Is there an exit strategy if the plan fails?
Whether the economy is good or bad, healthy organizations need a reserve or emergency fund. A two month reserve was once considered adequate. Due to changes in legislation and the prospect of future inflation, Boards should seriously consider building their financial reserves, putting tangible assets to work to create additional income and eliminating debt. Financial reserves should be used for emergencies only, and emergencies should be defined in your policies and procedures. It would be wise to cap how much of the reserve can be used for an emergency situation. Drawing on an emergency fund should be a very temporary solution to help the organization regain its balance when it has rolled out a new contingency plan. An emergency fund should never be used to sustain the same level of servies or salaries that preceded a financial emergency.
Third, evaluate your facility or other assets to see if they have been put to the highest and best use. Healthy organizations make efficient use of space to generate revenue. This also provides the opportunity to build relationships and collaborate on projects that benefit the community. Difficult times require a high degree of creative problem solving and cooperation. There is no room for sentiment. If a space is not being used efficiently, reassign the use of space in such a way that the building or asset is used to its full potential. There are churches that operate as little as three hours a week. Some may staff the office with volunteers a few hours a week. No other business operates with so little investment of time. If you have a small business with space that is not used efficiently, consider partnering up with additional businesses under one roof and divide the cost. Sharing resources reduces overhead expenses.
Lastly, eliminating debt will improve cash flow and risk associated with defaulting on a loan. Get on the fast track by setting a timeline to be out of debt. The devise a plan to meet the timeline. Otherwise comfort will guide the organizations financial management practices. There is nothing comfortable about tighting your organizational belt. Donor money should be used to preserve assets, improve resilience or build an organizations capacity to serve. Donors should not be asked to pay helfty loan fees and interest. Organizations that use deficit financing or rely on factoring services to maintain adequate cash flow, need to reconfigure their financial management practices and learn to live within their means.
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