At Armanino, we talk a lot about living in a VUCA world – Volatile, Uncertain, Complex and Ambiguous. The current situation definitely qualifies. With the recent outbreak of coronavirus (COVID-19), nonprofit finance teams can play an essential role in ensuring that the fiscal impact on an organization is mitigated as much as possible. Here are some ways the pandemic might impact your organization’s finances:

• Investment return – The recent stock market volatility is the greatest since the 2008 financial crisis and may continue.
• Reduced program delivery opportunities – Schools are already closing in many places, and programs that rely on in-person attendance may be suspended.
• Increased program demand - There may be higher demand for some programs. With schools closed, parents may need alternative activities for their children. Insurance and other concerns may limit the ability to provide programming, but virtual alternatives will be in demand. Nonprofit healthcare providers will undoubtedly see an increased need for their services. Adverse economic impacts could create more need for social services such as food assistance, emergency aid, and job placement.
• Fundraising - Special events may have to be canceled, reimagined, or rescheduled. Donors may reduce gifts or change their giving priorities.
• Increased costs – To remain operational, organizations may need to invest in new technologies that allow for remote work or service delivery. Organizations may want to look at assistance for hourly employees who may not be able to work due to health concerns or service disruptions.

Here are some practical things the finance department can do to help keep your organization healthy.

1. Cash Flow: Consider making a cashflow projection that looks at various scenarios. Organizations are already canceling spring events, and program activities may also need to be curtailed. Contributions may decline if the economic impacts are ongoing and/or donors redirect giving to organizations working directly on the response. Events later this fall could be affected if this goes on for some time.
2. Compensation: Model out some ideas for helping hourly workers if this is something your organization wants to consider. California is offering some relief via its disability insurance program and unemployment insurance, but each state will have different policies. You may consider offering additional benefits – one of my clients is already setting up temporary daycare onsite.
3. Insurance: Look at your business interruption insurance. From what we have heard, most standard policies do not apply in the event of a pandemic, but yours may be an exception. Will your insurance limit your ability to provide any services or have gatherings?
4. Special events: If you have a special event planned, consider changing to a virtual event. Your donors will appreciate the ability to absorb content virtually, and this may be more profitable in this environment. If you are still determined to book an event, consider event insurance (though it may be difficult to obtain right now). As an alternative, negotiate a refundable deposit with the venue. Some venues may be more flexible during this critical time.
1. Tax Note: If you are canceling a fundraising event, you will need to decide whether to postpone, cancel, or go virtual. And if you received donations for the event in 2019 that you choose to return to the donor, you will need to provide them with an updated 2019 donation acknowledgment so they can discuss it with their tax advisors. Donor communication will be crucial – some donors will want refunds, but others may not. We encourage you to reach out to sponsors and ticket purchasers to see whether they want a refund of charitable contributions and sponsorships before you begin processing returns.
5. Line of Credit: Consider drawing on your line of credit in advance of need. So far, this is not a credit crisis, but things could change quickly. If you know you’re going to have significant losses, and debt is a substantial part of your financing, you might want to discuss your plans with your bankers.
6. Funders: Talk to your foundation funders. One of the big problems in 2008 was that foundations were so alarmed by the drop in the market that they stopped giving right when social services organizations needed additional funding. The impression we’ve received now is that they aren’t planning on behaving that way this time. Still, it would be good to start a dialogue, particularly if you are going to develop new programming or incur new costs (such as remote technologies).
7. Government Funding: If local government funding is a big part of your funding, definitely speak to those sources about limiting delays. If you can negotiate advances from them, even better.
8. Virtual collaboration: Investigate applications that will allow teams to work without as much face-to-face contact. A lot of clients use Bill.com for bill payment, which eliminates the need for signatures on checks. Your bank may offer similar services. At Armanino, we use Skype, Teams, GoToMeeting, and Zoom for video and teleconferencing. Zoom allows free 40-minute meetings.
9. Investments: Prepare board members for the likelihood of losses on investments during 2020. We saw organizations panicking and selling at the bottom of the market back in 2008, without really thinking out their cash needs. Most of you are long-term players in the market, and history has shown us a random exit would be sound thinking can have negative consequences. Whatever you decide to do, consult your investment advisors, and carefully consider your response.
10. Financial Reporting: If you’re not already presenting financial information without unrealized gains and losses, it’s worth considering a change in format to communicate performance on a budget-type basis better.
11. Cybersecurity: Remind people about cybersecurity. The phishing emails have already started.
1. Coronavirus phishing emails: How to protect against COVID-19 scams
2. Coronavirus Scam Alert: Watch Out for These Risky COVID-19 Websites and Emails
12. Board Communication: Provide your board with an update on the above issues. They will feel less anxious if they are receiving proactive updates.
13. Reserve: Finally, you have all heard us preach of the necessity of maintaining a 3-6-month liquid reserve at all times. You may need to use your reserves now. When this passes (and it will, and the sun will shine again), you may need to budget for replenishment. If this isn’t something you have available now, cash management will be critical in the short-term, and establishing reserves important for the long-term.

Your Armanino Teams are here and happy to help. Many of us will be reaching out to clients in this volatile time, but reach out right away if you have something to run past us.