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This is part 3 of a 3-part series in support of our Safe Harbors Program.
Achieving Safe Harbor during the current COVID-19 pandemic includes understanding how cash moves in and out of your organization week by week, creating several ‘what if’ scenarios and budgets based on that data, and finally, working with the organization’s governance and management to craft the path forward. Today, we outline the final step in the process, making decisions based on budgets and scenarios to determine a strategy for the organization’s future.
As we seek to react to the current pandemic, cultural nonprofits have three concurrent needs:
Right now, many organizations find themselves focused on the response stage of the crisis, but several are also asking ‘what does it mean for us to recover?’ Leaders are typically centering their recovery on a ‘Safe Harbor’ or ‘Soft Landing’ approach. In this blog, we look beyond short-term cash flow and scenarios, and start thinking about what it will take to reengage in operations after the crisis subsides, but also acknowledging that recovery will require change. Managing in a time of crisis requires organizations to prioritize its opportunities, decide on its path forward with proper stakeholder facilitation, communicating recovery strategies early and often with a variety of stakeholders, and finally, telling your crisis story with an emphasis on mission.
The first step in managing during a crisis is for the organization to prioritize opportunities in planning. There are many opportunities that come to leaders quickly during a crisis (whether to close, furlough staff, pivot programs, maintain operations, emergency fundraisers, etc.), but prioritization gives focus to decision makers and clear external communications with stakeholders. While the exact opportunities are different for each organization, it is best to assign priority to each of your opportunities by focusing first on those that have the following characteristics:
Since so much is outside of our sphere of control during a crisis, prioritizing opportunities will inevitably involve:
How do you know whether to create a safe harbor or softly land? Expand, maintain, hibernate, merge, or close? What are the questions you need to answer to facilitate that process? Crafting your path forward will require board, staff, constituents, and other stakeholders to come together to discuss current and potential business models, availability of funding and working capital, and the degree of community support, among other considerations. Use the following Safe Harbor/Soft Landing Thought Tree as a guide to facilitate conversation on your path forward.
Facilitating conversations around the organization’s future can be exciting but challenging. Most likely, you are surrounded by people who care deeply about the organization and have their own unique perspective on its mission, values, and programs. And of course, when the stakes are high, so are the emotions. Some organizations use the services of a professional facilitator, but that is not an option for the majority of nonprofits. In light of that, here are some facilitation ground rules that leaders can use to provide candid and meaningful conversations:
Board members of a nonprofit organization are the fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission. These individuals are critical in conversations in the organization’s future, just as they are in non-crisis times. Board members should continue to uphold their standard responsibilities during a crisis:
But as the organization’s fiduciaries, board members have additional responsibilities during a crisis. If you are a board member, think about how you would approach these key questions when discussing your organization’s future:
When staff of all levels are involved in safe harbor or soft landings conversations, they tend to develop a shared sense of responsibility for the organization’s well-being and plans. It is easier for staff to buy in to tough decisions if they feel they understand the context for them. They may also have some of the best ideas, especially for areas like revenue generation and expense management, because they are closest to the programs.
As mentioned earlier, your board is fiscally responsible for the organization and needs to be informed. Ultimately, they must buy into and advocate for your strategy, and this becomes possible when board members have a shared understanding of the organization’s financial situation and risk tolerance in addition to your mission and strategic priorities.
While every funder (both individual and institutional) is different, most will appreciate honesty and having information sooner rather than later. Funders want to see that organizations are proactively making plans to adjust their budgets and operations based on the external and internal triggers they are facing. Leaders also owe it to the organization, as well as funders, to communicate the true financial needs for sustaining the enterprise.
A Crisis Financial Story uses your numbers to explain where you are today, how you got there, and where you want to go. It connects numbers to mission, context, actions, and needs.
When stakeholders understand your financial story, they can make better decisions to support your organization. Use this structure to construct your own crisis financial story to communicate your financial situation, priorities, and needs:
Questions: What have been the biggest events or changes (positive or negative) in the past 1-2 years? Effect of events on your financial health?
Data to Inform Answer: Past income statements and balance sheets.
Questions: What is your typical/current business model? How are you addressing COVID-19? What has been the impact of social distancing on your organization?
Questions: What are your future needs? How will changes affect your income statement or balance sheet?
Data to Inform Answer: Decision matrix and budgets.
When it is time to compose your safe harbor or soft landing story, always lead with mission. Then describe what happened, how the organization responded, what has been the effect on mission, and clearly indicate what the organization needs. Here is a sample Safe Harbor story:
Crestwood Arts School provides high-quality performances and classes to the towns of Aville, Btown, and Cville. Our stellar staff is made up of part-time teachers, actors, and artists. We have two professional administrators and a small facilities team that cares for our accessible, welcoming space.
COVID-19 brought our operations to a standstill – we are not able to conduct classes or hold performances. Our revenue has dried up and 60% of our clients have asked for refunds. Our facility is closed.
While we have a modest facilities and operating reserve, in order to meet cash flow needs, our board made the tough decision to furlough or lay-off most of the staff, except for one administrator, one facilities person, and one back office staff. Meanwhile, we applied for the PPP and have planned contingency budgets to get us through the next 3, 6, and 9 months. At 9 months though, we are completely out of funds, fully tapping our line of credit. The board is monitoring this closely and meeting weekly.
We are concerned that we will not be able to reopen or attract our audiences back once we do because of fears of social distancing. Our community may be incredibly impacted by a looming recession because of our high population of new Americans and immigrants.
We are looking for two things: operating dollars to keep us going while we are closed, and funds to help us pivot so we can think through how we might change programming so that when are able to open we can meet the clients at place that is comfortable and safe.
Some organizations are recognizing that returning to normal operations is not a viable option and asking how to the begin the process of ‘softly landing’ or merging/closing permanently. In making the decision on your path forward, organizations need to consider the full cost of closure, timeline, how they communicate the news, and how the organization plans to steward the organization’s legacy. Calculating the cost and stewarding the legacy will depend on many factors: collecting vs non-collecting organizations, presence of endowments and permanently restricted funds, CBA agreements, historic/governmental regulations, discipline-based best practices, and so on. However, the structure in communicating the news is the same for those telling a Safe Harbor Story. Here is a sample Soft Landing Story:
Crestwood Regional Dance is a 30-year old school and regional traveling dance troop that provides accessible instruction to children and adults, and in the summer months, brings dance to unconventional spaces and places throughout the tri-state region.
COVID-19 brought our operations to a standstill. We are not able to conduct our spring classes and our entire summer schedule was cancelled. We are an organization that relies almost entirely on earned revenue and our summer touring subsidizes our school scholarships.
Crestwood Regional Dance has a beneficial agreement with our landlord who has agreed to release us from our lease and we have notified our families that we are no longer able to offer instruction this year and are taking a pause. Our board is considering our options. Our founder, Mrs. Jones, is nearing retirement age and believes that it may be time for the organization to retire as well. The board is considering its options for placing its assets, such as dance and music equipment, as well as videos and memorabilia.
The board recognizes that the absence of our organization means that many children and adults may not be able to receive dance instruction. We are working with the local cultural council and community foundation to meet with other dance groups to see if they would be interested in hearing about our programmatic model and the success we’ve had, with hope that they could steward our approach.
While we could close our doors tomorrow and walk away, we want to close responsibly. We are seeking $15,000 to ensure that we close responsibly, file all the necessary paperwork, and steward our assets and legacy.
In summary, once available data such as cash flows, budgets, and scenarios are available, organization leadership can begin to consider recovery strategies. Both safe harbor and soft landing approaches require board and staff to discuss what it will take to reengage in operations after the crisis subsides and acknowledging that recovery will require change. This process requires facilitation with a variety of stakeholders, early and transparent communications, and ultimately, responsibly stewarding the legacy and mission of the organization regardless of the decision forward.
Additional Decision-Making Resources:
Part 1 in this series: Organizational Cash Flow Planning in a Crisis
Part 2 in this series: Building Organizational Scenarios and Testing Budgets