You can never completely prepare for an unexpected crisis, but when facing one it is critical that you have a clear view on the financial health of your organization. The sudden impact of coronavirus on fundraising and program revenues is unlike any economic crisis we have experienced in generations.
This page is designed to help you analyze the financial position of your organization. Generally nonprofits will fall into three categories:
- Able to maintain operations as an essential service. May be experiencing new or rising needs. Can perform on grants and contracts and may be able to solicit emergency funds.
- Able to maintain some programs or services but cannot return to normal operations until social distancing guidelines are no longer in effect.
- Organization cannot carry out its mission or generate revenue due to social distancing. This includes organizations that primarily rely on volunteers to deliver services.
CARES Act, including Paycheck Protection Program
The CARES Act established programs to help nonprofits, including Economic Impact Disaster Loans (EIDL), Paycheck Protection Program (PPP) and Employee Retention Tax Credit. To help you think through the process of applying for the PPP and other programs under the CARES Act, we have created a separate page, which you can access here.
Before you apply for government programs, appeal to your funders and donors, or brief your board, make sure you know the answers to these questions:
- What are your fixed expenses, minimum variable costs, and current accounts payable?
- How much unrestricted cash do you have on hand? How many months of expenses can be covered by the cash your have? (Excluding any grants or donations where you cannot currently meet donor restrictions.)
- What revenue can you reliably expect between now and August 1, if some level of distancing remains in effect?
We have outlined the process for calculating your cash position and cash flow so you can answer these questions. We have also provided you with tools and worksheets to do so.
Tools and Support
To help you go through this process, we have developed a Cash Position & Cash Flow Workbook. This workbook contains a basic monthly cash flow model as well as a weekly cash flow model for a quarter. There is also a tab that will calculate some helpful ratios that are good indicators of your financial health.
You can also contact us for help in using these tools or assessing your organization's financial position.
Determine your cash position
Cash "position" refers to the amount of available cash and liquid assets (assets that can easily be converted to cash) your organization has.
- Days Cash on Hand: This tells you how many days you can operate if no new cash came in. When dealing with a crisis, this is the first place to start.
- How do you calculate days cash on hand?
- Unrestricted Cash + Marketable Securities (Such as a Money Market) / (Annual Operating Expenses- Annual Depreciation/365)
- Burn Rate: This helps you understand the general rate you spend cash. In this case, the formula will help you to see how much cash you have historically spent per month. You can also adjust to look at your daily burn rate.
- (Total Annual Expenses-Annual Depreciation)/12
- To adjust to a daily burn rate, divide by 365
After determining your cash position, create a cash-flow forecast that projects how much your organization expects to receive and pay out over the remainder of the year, or for at least 3 months:
- If you are applying for the Payroll Protection Program, how much cash will you have if you get the loan and use the proceeds as required by the PPP program?
- Prepare a cash-flow projection.
- Now is the time to start assessing in the most realistic terms the future cash you expect to receive from your customers and donors and what you expect to have to spend on program delivery and administration.
- Use your statement of activities (also called a P&L or income statement) to guide your thought process. Go through every revenue line and expense line to assess how much you expect to spend. For accrual-based organizations, remember this is cash receipts and disbursements and not necessarily revenue and expenses.
- You can do this by day, week, or month depending on the level of your activity.
- Evaluate if you can collect your accounts receivable, including donation pledges, grants and contracts, and fees or other earned income payments. Assume that the rate of customers delaying payment or defaulting increases. Investigate whether you can advance payment of grants or contracts.
This process will prompt operational and strategic conversations about the future. After you have evaluated cash-flow and made decisions about applying for federal funding, consider doing a 12 month projection. It is likely some degree of social distancing will be in place until an effective treatment and/or vaccine are developed. What does that mean for your organization? Consider creating three scenarios: best case, most likely, and worst case.
If you get through the projections and decide that it might be good to consider temporary or permanent shutdown, see “Considering Temporary Shutdown or Dissolution.”
If you get through the projections and see that you will still be a going concern in the future, but could use financial assistance to get you through, see information on the CARES Act.
Contact your accountant or audit firm for help or request assistance from 501 Commons' finance experts. Choose between a Quick Financial Consult ($25/15 minutes up to 2 hours) or we can set up a consulting project if you need more assistance.
Services are provided by:
- Evan Bennett, Financial Services Program Manager
- Eileen Moran, Senior Financial Services Associate, Enrolled Agent
- Duane Landon CPA, Enrolled Agent