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How to Save Your Nonprofit From the Financial Downturn

FundraisingFinance & Accounting

This post is attributed anonymously in order to protect the identity of the author’s organization and donors.

The economic impact of the coronavirus pandemic is hitting nonprofits hard. As The New York Times put it, the new mission is survival.

Donors are understandably distracted with their own personal affairs. Business owners are busy putting fires out.

As a veteran of three nonprofits, including one that weathered both the dot-com bust and the 2008 recession, I want to share how we got through those difficult times.

So let’s get to it:  What can you do to save your nonprofit?

Think Before You Act

Resist the urge to leap into fundraising projects or to put in extreme hours. Do the counter-intuitive thing: kick back and take some time to think.

At our nonprofit, upper management sent out an urgent memo directing all staff to stop current projects.  Everyone was ordered to man the phones in order to drum up donations. Each employee was given a list of donors to call.

However, an intrepid staff member discovered that even if we obtained the average donation from every single member on the list, the total would only amount to $30k — hardly a solution to our problem.

We had leapt into action without adequate thought.

Think “Who” not “What”

I learned that the vast majority of our $1 million annual budget came from fewer than 5 “deep-pocket” doors. This is likely the case with your nonprofit as well. If you’re not certain who those individuals are, do a quick analysis using your CRM.

None of these top donors were on our emergency call list. They were excluded because, understandably, it was believed that only the founder or executive director should interact with these VIPs.

Lesson #1: Focus only on the donors that provide the bulk of your funding

This may seem like common sense, but in an emergency it can be hard to focus and get one’s footing. It’s easy to get off-track.

Lesson #2: Identify one successful entrepreneur

Typically, this top donor group is going to include successful long-time entrepreneurs. In our experience, it was always the entrepreneurs who saved us, not academics, not full-time philanthropists, and never grants.

Identify the top donor-entrepreneur who is passionate about your mission.

Lesson #3: Make a direct “ask”

Be blunt. Entrepreneurs are busy and action-oriented. Tell them in 30 seconds or less what you’re asking for.

They expect (and respect) direct asks.

  • Don’t beat around the bush
  • Don’t procrastinate
  • Don’t dwell on what you could’ve done differently.

Here’s an example of a direct ask: “Jerry, we’re not going to be able to make payroll next month. At our current burn rate we’ll have to shut down by July. Can you help?”

You can send this by email (if so, attach information on your burn rate) or you can make an appointment to speak with them by phone.

Ask For Advising, Not Just Money

If you choose email, realize that you’re going to have a phone conversation with them too.

During that conversation, request that they advise you going forward. Successful entrepreneurs have weathered all sorts of crises in their own work. They’re champions at figuring out impossible situations. And they have a dogged determination.

If your entrepreneur believes in your mission, he or she will front you the money and begin a close advisory relationship with you to eventually bring you out of danger and into success.

Please note: this process may take years, as it did with our nonprofit. In fact, for 8 years we were financially unstable, and were coached and financially stop-gapped by our entrepreneur-advisor.

So don’t be disheartened if you’re on a long road to financial security.

Lesson #4: Entrepreneur-donors will bring others in

Typically, successful long-term entrepreneurs know at least one other business owner who can donate at the same level. They’re not shy about asking their friends or acquaintances. And they’re seasoned closers.

In our case, our entrepreneur-advisor eventually brought several top donors on board. The first one was the founder of a hedge fund, who made repeated donations of $100k, and became our second “stop-gap.”

For years these 3-5 donors kept our nonprofit solvent and growing.

Go 100% Remote ASAP

Giving up your office space and going remote can save you thousands of dollars a month that can be spent keeping staff paid and employed.

It’s also the only healthy option for several reasons:

  • Working from home will eliminate the risk of your employees catching (and spreading) COVID-19 in the office or during a commute.
  • Some of your employees may need to be at home for their children because of school cancellations.
  • Others may need to be socially isolated because they are caring for elderly parents or relatives with underlying health conditions.

Unfortunately, the nonprofit I worked for did not go remote when the 2008 recession hit. Leadership could not wrap their heads around the concept of not having an office. Part of their reticence was the notion that the organization would lose some of its prestige by no longer having a physical office.

However, you can turn telecommuting into a win. Your top donors are likely funding other organizations working remotely as well. Aim to be the organization that can say, “We’ve successfully cut our expenditures by X% and are fully remote”. Frugality can become a competitive advantage. Whereas lost prestige is almost always illusory.

Also consider: commercial real estate is taking a huge hit during this pandemic. The rent you’re paying today will likely be higher than market value soon. If there’s any way to get out of or renegotiate your lease, do it. Start today by reviewing the terms of your lease and communicate with your landlord.

Lastly, when your organization has made the switch to working remotely,  offer your employees compensation (perhaps a percentage) for their use of their home utilities — such as phone and internet ⁠— for work.

Apply for Federal Assistance, If Available

I won’t go into detail about federal assistance in this article, as we currently do not have enough information about the application process, nor have we been given a timeline on when we can expect to obtain these funds. But you should follow the updates and try to apply when possible:

Additional Considerations

  • If you are a nonprofit founder or executive director and you are financially able, consider forgoing a salary or, at minimum, taking a salary cut. This also signals “skin in the game” to your entrepreneur-advisor.
  • Take special care when planning remote handling of financial operations. Do not neglect internal controls. Avoid the temptation to cut corners on bookkeeping: handling bookkeeping internally is the chief precedent of nonprofit fraud.
  • Be transparent with staff: maintain clear communications with staff and be up front with them about what the organization is facing. Some of your best ideas may come from your employees. Plus they deserve to have an opportunity to create their own personal “Plan B” or at least brace mentally for the possibility of being out of work.
  • If you’re one of the few nonprofits with an investment portfolio, have your financial advisor review your asset allocation. Market carnage is creating new winners and losers. So far, the few winners include orange juice, U.S. Treasuries, and gold. In stocks, Canada’s Shopify has soared past Royal Bank of Canada, signaling a strong shift to e-commerce.

Wrapping It Up

Be bold. Step out and make your direct asks. The sooner you do this the more information you’ll have about potential options.

In the process, make sure you and your staff get adequate sleep. This is a bedrock of a good immune system.

Above all, don’t lose heart. Don’t stop.

I hope you’ll return to tell us your story of how, against all odds, your nonprofit survived the financial downturn of a lifetime.