There is an increasing agreement across industries, sectors, and businesses that the world that emerges post COVID-19 will be very different from the world as it was, not too long ago. While we are all grappling with the immediate effects of the pandemic, we need to be prepared for the economic repercussions that we will feel in 2021.
As most nonprofit founders and CEOs are executing strategic plans to keep their teams safe, it is also important to simultaneously develop plans to keep our organisations alive, so that when the dust begins to settle, and the world begins its path to recovery, people will have jobs to return to, and the programmes we run will continue to create impact on the ground.
We can expect funding to potentially take a downturn, either due to a reduction in the overall funds available, or as a result of funds being redirected towards more imminent causes—COVID-19 relief and rehabilitation work, livelihoods, and healthcare. With this in mind, many nonprofit leaders in India and globally may have to make difficult choices to stay afloat. That’s why it is imperative that we examine the financial health of our organisations for the next three to nine months and begin to plan an appropriate response.
We need to be prepared for the economic repercussions that we will feel in 2021.
We know that the suggestions made in this article might not universally apply for all nonprofits—each leadership team knows their organisation best, and is therefore best equipped to make relevant assumptions. While none of us know how the situation will unfold in the next month or longer, we are hoping that by providing a guide, we can help leadership teams think through the different scenarios that might arise as a result of it.
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An effective way to prepare organisations financially is to run a scenario planning exercise, and prepare for the worst- and best-case scenarios. This is a critical first step as it will determine the course of action going forward, and shape financial and programme models for the next 12 months, starting April 2020.
In our experience, a relatively simple and useful way to do this is by defining three stages—best-case scenario (Stage 1), average-case scenario (Stage 2), and worst-case scenario (Stage 3)—and creating plans and financial models for each.
It important to plan actions in phases, like any other programme implementation work a nonprofit would take up.
Once these scenarios have been defined, key decision-makers (leadership teams and active board members) need to chart out the potential risks within each of them. For instance, if in the scenario you have identified that there is a need to make salary cuts, the next step would be to create action points while carefully considering risks—on one hand, cutting too much immediately might demotivate team members, while not cutting enough might result in insufficient funds to pay team members in six months. It is therefore important to plan actions in phases, like any other programme implementation work a nonprofit would take up. Here are steps that can be applied for effective scenario planning:
In an Excel document, create four sheets:
The assumptions below have been made based on our understanding of how organisations might be affected. Please modify them based on your needs.
It is important to keep in mind that the scenarios need to be defined for each organisation’s context, programmes, and financial situation, and will vary from organisation to organisation.
Related article: How to approach your funding during COVID-19
Madhukar Banuri (CEO and Founder, Leadership for Equity), and his team developed a template for six case scenarios, similar to those above. This section presents his template, keeping some key aspects in mind:
Here, financial action is driven by the idea that in any situation, steps must be taken to give the organisation a runway of an additional three months. For example, if an organisation can continue without reducing financial expenses for six months, it would help to plan how this runway can be increased to nine months. In the above case, escalation levels based on three expected external scenarios have been defined, with the assumption that the strength of the organisation stays the same.
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It is essential for nonprofit leaders to think about their ‘guiding principles’ when undertaking such planning. For Madhukar, these were:
We are all struggling to stay motivated. We’re trying to manage anxiety about the situation, be productive, and manage uncertainty around government orders and travel restrictions, all the while keeping our project priorities going. It is here that the art of juggling—not balancing—these multiple thoughts is critical.
Leaders need to think long and hard about their core mission and vision, and whether or not they feel the need to re-purpose their organisations. This is a difficult, but important question at a time when everyone is moved to do something specific about the situation, and many organisations are choosing to re-purpose their budgets and human resources. There is no right answer, but it’s an answer that each organisation needs to define for itself.
In such unprecedented situations, predicting the future is difficult. It is best to critically understand and plan for potential situations (as per the scenarios you choose), affected resources, and subsequent milestones.
Individuals, organisations, and nations, are all going through tough times. Connecting with those who are in similar positions allows for opportunities to collaborate on solutions, or learn from those who have a better understanding of the situation. In order to make informed decisions, it is essential to keep learning from sector veterans and other organisations.
Laying off team members and shutting down the organisation are two scenarios that need to be avoided at any cost. Therefore, financial decisions should be made to give the organisation as much financial runway as possible, in the hope that at some point things start to turn around.
The authors would like to thank Madhukar Banuri for sharing his experiences, knowledge, and processes with them.
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