Coping with a funding crisis—Part 1 of 5 in the series Surviving a Financial Crisis: Strategies that
Coping with a funding crisis—Part 1 of 5 in the series Surviving a Financial Crisis: Strategies that Work
Has this happened to you? You walk into your office on a Monday morning, early this time, only to find the phone ringing. You pick it up and find an exasperated board member, telling you that they have heard rumors over the weekend that your largest funder, city government, is considering cuts to your budget for the coming fiscal year. You try to understand why this board member is so upset, and then you realize. Oh, you mean this year. This calendar year? Right now? How much? Is that possible? Yes. Your top funder is about to cut your budget by 40%! This is not fictional I can assure you. Like most nonprofits, Main Street organizations build their budgets from a variety of sources, but if one source is an overly large chunk of your budget, it is logical to panic when any cut is discussed. In this case, the revitalization organization is highly dependent on government support for half of their annual operating budget. This unfortunately, is more common than you think. Nonprofit organizations, like any business, put themselves at risk if their revenue is highly concentrated in one sector or clients. A diverse revenue stream can prevent some of the panic than can ensue.
But once the initial shock dissipates, what should you do? First, do not panic. Second, do not disregard bad news. Denial is a powerful motivator for people as well as organizations. Board leadership will have to create a sense of urgency among the other board members that first, news is real and bad and second, the Board must act.
This is the time to gather the Main Street tribe together. Invite your board members, founders, past presidents and key volunteers together to discuss the bad news. Board leadership should be prepared to discuss with the group:
- What is the range of the budget shortfall?
- Is this shortfall short‐term or long‐term?
- Is this a cash flow or balance sheet issue?
- Is the crisis solvable?
- Is there enough time to make changes?
- Will the crisis sink the organization?
What to do now? Once you know all the facts, form a “Brain Trust” to help reinforce the core mission of the organization and identify possible solutions. Brain Trust members should be well known by the broader group and have a history with the organization to assure that the best advice possible is available. Organize the “Brain Trust” into two teams. One team will scour the budget and work plans looking for cuts. The other team will review every work plan item to identify ways to boost revenue. The Board should give these teams authority to interview committee chairs about their activities and work closely with them to review work plans for both cuts and revenue enhancements. These teams should also spend time with the Executive Director and treasurer to get further details about cash flow and organizational finances. In the mean time, remind the meeting attendees that these discussions are confidential until the Board reaches a decision about what course to take.
Making decisions Give the Brain Trust teams two weeks to work and then have them share their suggestions with the Executive Committee. These teams will look at all of programs of the organization and discuss if any are marginal to the mission. Perhaps these projects will not be so obvious at first, but they can be taking up volunteer time as well as financial assets better allocated to mission critical activities.
The Brain Trust teams should discuss their findings with the Executive Committee members and make any modifications before presenting their final comments to the Board. The Board should review suggestions from both teams to come up with a mix of revenue options as well as cuts to face the financial crisis with sufficient speed. Indeed both cuts and revenue increases must be considered and the board will know that they have been successful, because no one is happy. Once the full Board makes a decision, they should implement the cuts, and communicate their decisions to key funders and others outside the organization.
Real solutions coming
The following blog posts will highlight real solutions for revitalization organizations that are facing budget cuts. We will review how 25 ideas for raising revenue; 25 ideas to cut costs and 15 ideas about how to communicate your message as you go through this turbulent period. Please let us know about how your organization faced your financial crisis by adding a comment to this post.