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What Nonprofits Can Do to Maintain Liquidity

It doesn’t take a pandemic to make a nonprofit question its capacity to survive. Events such as a loss of major funding, a damaged reputation, huge unpredicted expenses could swiftly reduce the lifeblood of the organization, plunging the nonprofit into a deep concern for its long-term survival.

Any nonprofit CEO has the data to predict how long the organization can stay afloat without income. This, however, would be only one rough measure of the nonprofit’s liquidity. Board members need to take the discussion further. They need to realistically appraise total liquidly from fixed/variable expenses and income venues as they relate to mission accomplishment.

Some nonprofits may have a liquidity picture that can carry them forward for years. A second group will be able to maintain steady results because of forward planning efforts and possibly short-term bank loans. A third group will be seriously impaired and will need to review all income streams and costs. Survival plans may require engaging a merger partner. Their current fixed costs alone may only allow them to operate for a month or two months without income.

I estimate that thousands of nonprofits will be in the third grouping. Cost-cutting will likely be a Board’s first reaction.   But an organization can’t exist on a diet of cost-cutting.

Following are some actions a board may take to maintain liquidity and avoid the continual squeeze of cost-cutting.

A board may require two or three members to become highly active in fundraising. If the current board roster does not have board members who fit this description, the nominations committee might recruit “alumni” board members who have known abilities and contacts. Sometimes one board member can provide significant leadership to maintain liquidity. For example, one human services board member showed the organization how to profitably have an annual dinner honoring a local leader.   In addition, the initial recipient gave the nonprofit an endowment to help support the dinner each following year.

Review all funding venues with critically. Be certain as possible that multi-year pledges are going to be fulfilled. Every group from major donors to grass-root funding may be different during and after the turbulent time.  Where possible and appropriate, visit with major and potential donors at least once a year. While not all major donors want these visits, this should be reaffirmed occasionally. I have observed additional support arising from these types of contacts. Invite an appropriate board member to accompany the CEO to make the personal call. She/h can add an “outsider” validation to the nonprofit’s impact.

Review all programs for client needs. Focus some funding efforts on programs that have rising demands, but for which the ability to garner donations may be receding at the same time. Avoid program “mission creep” during these turbulent periods. Only experiment with or add new programs that are clearly aligned with the mission. For example, a small nonprofit dedicated to assisting the homeless now offers services to a growing number of motor home dwellers living on local streets. The local discussions about the needs of this new client cohort have driven additional fundraising support for the nonprofit.

As a fundraising effort to enhance reserves, consider selling some assets. They can involve buildings, land, artworks or other items that are owned by the nonprofit and that have significant market value. After rigorous reviews, some nonprofit art galleries have sold some of their collections to maintain liquidity.   A nonprofit athletic facility, facing COVID 19 shutdown costs and increased competition from a nearby new nonprofit facility, sold some of its landholdings as one action to maintain liquidity.

Review the nonprofit’s ability to acquire bridge or long-term loans from the bank that currently offers it a “line of credit.” If a nonprofit does not have one, it should talk with a reputable bank about establishing one.

The current Covid-19 period appears to be a good time to consider merging with another nonprofit to stabilize liquidity. “Mergers in the nonprofit sector tend to lag behind the private sector in an economic downturn. Unlike the private sector, there is a lack of matchmakers in the ecosystem; therefore, the onus is on organizational leaders to include a potential merger as an option.” * I have been involved with the merger of two national membership organizations with identical mission visions and values. Although there were “bumps in the road” until the merged organization could solidify, the liquidity issues disappeared.

Business executives agree that their organizations can’t cost-cut their way to profitability. Similarly, nonprofit board members need to agree that nonprofits can’t continually cost-cut their way to maintain liquidity and mission accomplishment. These suggestions are all based on field experiences, and I hope they will be useful to others trying to maintain liquidity in an unusually turbulent time.

Dr. Eugene Fram
Dr. Eugene Framhttps://non-profit-management-dr-fram.com/
Eugene H. Fram, Ed.D., is an expert in nonprofit governance, a business consultant and an award-winning emeritus professor of the Saunders College of Business at Rochester Institute of Technology (RIT). He is also the author of six books and more than 125 published articles and has been widely quoted by national media on topics ranging from business to high-performance nonprofits. His blog platforms on nonprofit governance have in excess of 3500 followers. He is a past recipient of RIT's highest award for outstanding teaching and one of a very select group awarded the Presidential Medallion, given to those making exceptionally significant contributions to the university. In 2012, a former student anonymously contributed $3 million to endow an RIT Chair in Critical Thinking in his name, an honor Dr. Fram describes as "a professor's dream come true!" Over his distinguished career, he has served on 12 nonprofit boards overseeing diverse community, national and professional organizations, and also has served on five for-profit boards. His particular passion is helping nonprofit boards perform at high levels as more is expected of these boards today than most people realize. He is the author of Going For Impact – The Nonprofit Director's Essential Guidebook: What to Know, Do and Not Do, and POLICY vs. PAPER CLIPS - How Using the Corporate Model Makes a Nonprofit Board More Efficient & Effective.

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