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Better start planning how you are going to manage the impact of the recession
By Betty Ferreira
May 4, 2009

Research conducted that assesses which organizations will withstand the impact of the recession conclude that it is not necessarily those that are boasting the largest budgets or the most effective fundraising efforts in 2008.
Organizations that are most likely to withstand the impact of reduced fundraising revenues due to the loss of corporate sponsorship, major gifts, and reduced core funding are likely to:

know how prepared their organization is to withstand the recession;

have developed a recession plan that seeks to assess the organization and its programs;

refine the impact of programs;

have an intimate knowledge of the financial status, systems and internal controls;

have developed various scenario planning initiatives;

have implemented strategic and financial restructuring strategies.
Do you know how well prepared your organization is to withstand the growing impact of the recession? Have you developed and implemented a recession plan?
In addition to proactive and thorough planning, there are other criteria of organizations that are better prepared to manage in tough times. The Nonprofit Fundraising Trends 2009 study conducted by Retriever Council LLC and commissioned by a collaboration of groups and foundations in the Oregon and South West Washington area sought to better understand how nonprofit organizations are managing in light of the recession.
This study concluded that nonprofit organizations that are better able to withstand the impact of the recession share some of the following criteria:

A diversified revenue stream.

An engaged leadership - including executive, development/fundraising and board - ready, willing and able to take on any new challenges that lie ahead.

Greater efforts at relationship-building and donor outreach.

Emphasis on development staff or resources.
I know you're busy, overwhelmed with your daily tasks, and do not have time or perhaps the expertise to develop and implement tools that will help your organization to withstand the impact of the recession. Besides, you're probably thinking that you have time on your side; you will get to this important task in the fall or the winter of 2010 when information about the recession is more readily available. Right?
If this is what you are thinking, I would strongly suggest that you reconsider postponing attempts to fortify your organization against the recession. Why? Because it takes time to develop and implement a recession restructuring plan. Funders may not provide you with ample advance notice regarding reductions to core funding, which will leave you little time to proactively manage. You may not have enough room in your budget to sustain any decreases in donations or funding, and you may not have adequate financial reports including cash flow forecasts to inform you about the impact of the recession.
To implement a recession plan, you should consider the following major steps:

Assess your recession preparedness.
a. What is the financial health of the organization?
b. How resilient is the organization to change?

Carefully prepare and analyze your cash flow forecasts.
a. You should prepare and continually update a month-to-month, year-long, cash flow forecast to identify potential deficits and to assess if you have enough cash to withstand minor deficits. If you have major deficits, you need to implement a restructuring plan ASAP.

Use financial ratios so that you can better understand the financial health of the organization. Some of the important financial ratios include payroll, personnel, restricted, debt, government reliance, and self-sufficiency ratios:
a. Payroll ratio: cash available in the bank ÷ semi-monthly payroll expenses
b. Personnel ratio: total wages, taxes, benefits ÷ total expenses
c. Restricted revenues ratio: (cash + accounts receivable)/temporarily restricted net assets
d. Debt ratio: total liabilities ÷ total unrestricted net assets
e. Government reliance ratio: grants, contract income and core funding from government ÷ total income
f. Self-sufficiency ratio: total earned income (revenue) ÷ total expenses

Develop scenario plans based on estimates of reduced funding/donations.
a. Be clear about the impact of the programs your organization offers.
b. Provide strategic and financial restructuring options for each scenario, and do not be afraid to cut non-performing programs that are limited in impact or that do not have sufficient funding.
c. Be careful about making blind cuts across the board and initiating cost-containment initiatives without careful analysis of your options.
d. Assess your organization's capacity to enter into a collaborative, joint venture, to maximize the impact of programs and streamline administrative and operational expenses.

Develop a restructuring plan to implement one of the most likely scenarios.
You may recall that I provided you with additional tips on how to assess the impact of the recession on your organization in a previous article, Strategies to proactively assess the impact of the growing recession on your nonprofit,and cost-containment tips in the article Leaner times call for leaner measures. Feel free to use the information in these two articles to fortify your efforts.
For further information on how to develop a recession plan, how to conduct a recession preparedness assessment, how to scenario plan and how to develop a restructuring plan, nonprofit organizations may find it valuable to attend the Forward Together: Leading the nonprofit sector through the recession conference in Toronto on May 25th. The the conference will provide resources and training on how to develop a recession and restructuring plans; risk management due to financial and human restructuring; trends in social innovation, collaboration, open networks and shared services; and it will include a lively discussion with a variety of Canadian funders on whether funding will change in light of the recession.
For up to date information on the recession, its impact on the nonprofit sector, and tips and strategies to manage in tough times, please follow me "bettyferreira" and CharityVillage "charityvillage" on Twitter and follow the new nonprofit Recession Watch blog.
Betty Ferreira is the founder of ReStructure Non-Profit Consulting, which works to restructure, turnaround and start up new nonprofit organizations. ReStructure provides a variety of consulting services, including organizational/financial assessments, strategic planning, as well as providing outsourced human resources and accounting services. Betty can be reached at betty@restructure.ca or visit www.restructure.ca, www.nonprofitrecessionwatch.com, and www.therestructureconference.ca.