If we have learned anything from the COVID-19 pandemic, it’s that things can change rapidly. As the immortal Ferris Bueller use to say, "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.” Well, what if the same applied to the non-profit organizations we care so much about? If they don’t stop and assess, could something be missed?
From COVID-19, we’ve learned that non-profit organizations are significantly more vulnerable to business continuity concerns than for-profit and larger commercial entities. So, with that said, what risks should a board member and/or management team be looking at and addressing at this time? Here’s a quick list of the top 10 risks to consider:
- Economic Risk- Without a doubt we are in the midst of transformative change with our economy, especially in New York State. The impacts to individuals, corporate donors, state and local budgets could play a major role in a non-profit's 2020 budget. If you already adopted a 2020 budget back in the good ole days of 2019, that document should be reassessed immediately for the changing landscape.
- Operational Risk- We're already seeing disruptions in the day-to-day operations of many non-profits. Questions that should be asked immediately are: what is the current demand for your services, can you forecast the need for your services 3-6-9-12 months out, and do you have the workforce or possibly too much idle workforce compared to the dollars coming in? If your finance team has not had a practice of doing cash flow forecasts and projections in the past, this practice is now more important than ever.
- Business Continuity Risk- Some non-profits have already taken drastic steps of cutting back their workforce due to a clear lack of demand during this crisis. Understanding how long your non-profit can survive with little to no contribution dollars or fee-for-service dollars is important to know. Depending on the non-profit industry and focus point, as well as any nest eggs related to investments and endowment pools, this will play a major role in understanding the severity of this risk.
- Political Risk- In February 2020, we were focused on the upcoming national election, the impacts of candidates' positions, and how that would change the operations of the organization. Now political risks have an even greater focus as decisions made by federal, state, and local governments can impact which organizations are operating and how. This particular risk is difficult to gauge in these times, as it seems it changes daily, however organizations should be meeting more frequently to address what could happen 1-2 months or 3-6 months from today and how that plays a role in day-to-day operations.
- Credit Risk- This particular risk should be focused on in at least two perspectives. The first is understanding the non-profit's ability to obtain lines-of-credit and other means of supplementing day-to-day liquidity. The second is understanding how long or far out you can customarily pay vendors, assuming there is a tightening of cash and other resources.
- Reputational Risk- Any decisions regarding services, personnel, vendors come with a pro/con equation that should be assessed before moving forward. For many non-profits, the reason why donors and funding sources continue to contribute is due to the stellar reputation of the non-profit. Clearly these decisions should not be made without dialogue between top management and board leadership.
- Quality Risk- This risk is concerned with services or products not meeting standards as set by the non-profit or some other regulator. During times of stress or possibly lower staffing levels or new staffing, it is important that leadership create clear and routine communications to staff regarding set values, purpose, and expectation. Quality issues may not present short-term ramifications, however they can certainly lead to long term financial and reputational problems if not kept in check.
- Resource Risk- Particularly in Upstate New York, we are seeing declines in the skilled labor force for many healthcare and other professional level individuals. The continued migration out of New York for a variety of reasons will increase competition for those individuals amongst various providers. Non-profit organizations should expect increasing salary and benefit costs to attract these qualified individuals to fill available job opportunities. It remains to be seen the full impact of an economic recession as part of the COVID-19 crisis.
- Legal Risk- This risk involves concerns regarding existing regulations or changes in law impacting your business. With the onset of the COVID-19 crisis, and non-profits needing to adjust and address everything from staffing to revenue streams, it is important to consult with your legal advisor regarding employee and other law protections.
- Strategic Risk- During calmer times this particular risk would be of higher concern. This risk addresses the concern of particular strategies, or lack thereof, not working or failing to meet stated goals. Many non-profits do not strategize about how they are going to seek capital dollars for property and equipment needs 5-10 years down the road. Another missed strategy is how the organization will grow its endowment or other investment pools to help them see past events like the COVID-19 crisis.
Every so often we get reminders of how normal life can change within an instant. It is important for non-profit organizations to direct their energies to not only achieve break-even results, but to create surplus funds where possible to expand their mission and/or provide a source of funding for those rainy days. Or weeks. Or months.
We appreciate being your trusted business partner and advisor. If you have any questions, do not hesitate to reach out to our Tax-Exempt experts at The Bonadio Group.