First, know the current state of your organization’s liquidity. What assets can currently and easily be liquidated? And more importantly, how long will these assets sustain your programmatic and operational costs? You should know your days of cash on hand (which can be calculated as your cash balance divided by your estimated daily cash expenditures). With that baseline knowledge, a conservative cash flow projection should be prepared and continually updated. An internal pivot to cash-basis internal financial reporting may be necessary if your organization is experiencing liquidity concerns.
Second, start exploring options to enhance this liquidity. Does your organization hold investments (other than your donor-restricted endowments) that can be liquidated if needed? Do you have access to a line of credit? Do you have receivables (other than from the federal government) that you can push for collection? Would additional or larger endowment draws be an option while still prudently managing these endowment assets in accordance with your investment policy? If none of these options are readily available, it might be time to start exploring if any financing is available to your organization.
Finally, take a thorough, critical look at your organization’s budget. The pandemic showed that delaying action can put significant strain on financial resources. Identify which expenses are fixed versus variable, prioritize upcoming expenditures, and prepare multiple cost-cutting strategies in case they become necessary. Additionally, assess your revenue streams and work closely with leadership and the board to explore opportunities for greater diversification.
Political uncertainty can be challenging, but not-for-profit organizations’ role in supporting communities is more critical than ever. By understanding your organization’s current financial position and proactively addressing potential challenges, you can ensure it remains strong and ready to execute its mission.
Published: 02/13/2025
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