Financial Resilience: 5 Critical Actions for Nonprofits Facing Cash Flow Challenges

In times of political or economic instability, nonprofits need strong financial strategies more than ever. Dive into these five critical actions to strengthen your organization's financial resilience and maintain your impact when cash flow challenges threaten.

1) Assess the timeline: Short-term crunch or long-term challenge?

Analyze your nonprofit's financial trends to determine the nature of your cash flow situation.

  • For short-term issues, a line of credit can be a good solution. Look for a local bank with a Community Development Financial Institution (CDFI) relationship. Note: It can be difficult to find banks that offer lines of credit to nonprofits.

  • For long-term impacts on cash flow, consider the strategies below.

2) Frame your approach: Housekeeping or Strategic Moves?

Differentiate between routine financial management and transformative fiscal strategies for your nonprofit.

Housekeeping: What costs could be cut without having a major impact?

  • Are there software subscriptions that aren't being used or consultants who are a nice-to-have but non-essential?

  • Can you renegotiate contracts with vendors or service providers for better rates or terms?

  • Start your search by taking a close look at budget variances and the details of your expenses.

Strategic considerations: Prioritize program-specific financial reviews to identify cost-cutting measures that align with your mission goals.

Questions to consider:

  • Which programs have the most mission-critical impact?

  • Which programs have the most restricted funding?

  • Which programs generate momentum with donors for unrestricted funding?

  • Which programs support earned revenue?

3) Review staffing needs: Right-sizing for financial stability

Consider cost-saving initiatives even if they feel really uncomfortable. For example, reducing all salaries to 80% time for a limited period or mandating a 4-week unpaid leave for all staff.

Note: While effective, these strategies can impact morale and employer trust. Successful implementation requires transparent communication and a team with a strong sense of unity and purpose.

Staffing Changes Checklist

  • Update your accounting of restricted grant spending. Ensure that you will spend all restricted funds. If you are unable to complete your restricted spending, you may need to return grant funds.

  • Identify all conditional funding or funding with deliverables that you are obligated to deliver. All plans for your forward budget must ensure you are able to meet all of your contractual obligations.

  • Read your employment agreements and connect with HR. Any staffing changes should be discussed with an HR professional. Be aware of both your rights as an employer and your employees' rights.

  • Know your program performance.

Sustaining your mission in times of reduced cash flow comes down to understanding the financial performance of your programs. These KPIs can inform your decisions in tough times.

  • Profit and Loss by program: Revenue, Expense, and Net Income by program

  • Restricted funding by program

  • Impact metrics by program

  • Funders by program

  • Accounts Receivable Aging

  • Accounts Payable Aging

4) Engage your board: Transparency in financial communication

  • Decide in advance how you will react to different situations.

  • Proactively develop scenario plans with your board: "If X happens, we'll do A, B, and C".

Having pre-agreed strategies demonstrates foresight and preparedness, even though these conversations can be challenging.

5) Build your support network

  • Develop a group of colleagues and advisors to discuss tough decisions and support you.

  • Consider joining nonprofit leadership forums or peer groups for additional support and shared experiences.

Remember: Leadership during tough times is challenging. Prioritize self-care and seek personal support to maintain your focus and effectiveness.

Burton Li, CEOaccounting business