Contingency Plans

Nonprofit contingency pie imageRecently, I was with an organization that was concerned about a budgetary deficit for 2009. They were confronting questions like, “What if we have fewer members this year?” And, “How will we handle our finances if we have to offer services to 10% more people with no additional funds in sight?” Essentially, the question they were asking was – how can you know if you are heading towards trouble when so many aspects of fundraising and financial security are dependent on others? The answer is a contingency plan.

A contingency plan should be part of your strategic plan. And that plan should include the expectation that the finance committee or the Executive Director should monitor performance, particularly in volatile times. A healthy organization understands the need to have snapshots at set intervals to help predict major changes before it is too late to do anything about them.

How Does It Work?
In its essence, you determine if by Month X, we are down Y%, we need to do Z. Z is not necessarily something you ever want to do, but may be essential to keep the organization afloat. This means, if you normally raise 30% of your annual funds through a direct mail campaign in April to pay for operating costs, you might say, “If by May 31st we have less than 24% or our necessary annual funds, we will need to reduce 20 administrative staff hours per month.

There is no doubt that reducing the hours would affect the efficiency of the organization and add to the workload of other people who already feel taxed. But, this may be determined as the best way to reduce costs while keeping everyone employed and maintaining programs and services. Tough measures for tough times.

These “if, thens” are not random thoughts on what you might do if you think you need help. These are concrete measures to avoid a large shortfall at the end of the year. In addition, these plans can avoid forcing you to make more drastic decisions at a later time when you have eliminated many of the possible options available to you if you had seen the specific concern sooner.

A deficit in April will not be aided by hoping your November campaign raises an extra 6%. Those additional results could come, but only with a major shift in the way you run your campaign and you had better determine a precise method to increase those numbers. And if you know of a precise way to increase your numbers by 6% – it’s probably worth doing before you need a contingency plan put into action.

What You Should Know
Time. Creating a contingency plan is time-consuming. There are no ifs, ands or buts about it. You can hire a consultant to aide you in this (like Mersky, Jaffe & Associates), have board members take it on, or have your CFO or bookkeeper help but it will take time.

Who Should Create The Plan?
A person (or people) leading the endeavor should understand the organization and the budget, know the meaning of objectivity and possess a bit of creativity. It is one thing to say we need to cut $40,000 from operating costs and another to say we can cut $30,000 by eliminating two paid internships in exchange for ones that offer college credit, and one program that serves less than one percent of your population. Everyone’s goals should be to retain as much of the organization as possible without sending you down the path of desperation.

You Can’t Do It In A Bubble
All decisions will require the buy-in of everyone involved. This includes the board, senior staff, the development team, even some major donors. If a donor were to hear about budget cuts through the grapevine, instead of a meeting explaining what has happened and why, they may decide you are desperate and worry that their investment in your organization may be wasted. That, of course, would only compound the problem.
Uncertainty Breeds Fear. The reality of the situation should not be forgotten. You are doing this because in an uncertain economic climate you want to ensure the longevity of the organization. You may need to be a bit more bare bones for a few years, but it will ensure that you will still be around serving the public for years to come.