We’ve joined with a number of our nonprofit experts to bring you blog posts that will help answer some of your nonprofits toughest questions.
See Cherian’s answers below, and check out all of his webinars with CharityHowTo here.
Question: One of our challenges is forecasting revenue when we are trying new ideas and there is pushback on committing to underlying assumptions. Should we budget in a range, or just nail down a baseline scenario, etc…? If we don’t commit to any forecasting, we can’t make any decisions.
Answer: You should assume that your new ideas get you nothing and if you want to only do new ideas, that’s dangerous territory.
I’d recommend investing in new strategies that have ideally some proven track record in your organization or elsewhere that you feel confident about. In that respect, you can get general forecast for resource allocation.
If you do go with a new strategy without external validation on income, your best bet is to aim low and be pleasantly surprised. If you anticipate $1M and get $100K, that’s potentially an existential threat. If you anticipate $50K and get $100K or even $50K, that’s workable.
Question: I am planning on doing 3 budgets…things become relatively stable, things are very challenging, nuclear winter. I was planning to present the middle budget to the board, not the nuclear winter one. Are you suggesting that we present to the board for provisional adoption the nuclear winter budget?
Answer: Yes, I recommend presenting and strategizing through “nuclear winter” as this both informs your middle strategy but also level-sets with your staff and your board.
Remember that your middle scenario is unlikely to be correct on all levels, meaning you will need to make different cuts or investments. By setting the lowest possible baseline, all of your middle scenario strategies are investments or enhancements rather than tough choices.
From that perspective, you reframe the discussion with board and staff from ongoing stress of cuts and uncertainty to opportunity and unlocking potential.
Question: Our board wants to discount annual dues retroactively by 37.5% due to covid. Is this necessary, too little, too much?
Answer: Not knowing the particular scenario and situation, I’d say this might be unnecessary. Given the option for people to pay less they will regardless of circumstance.
If your dues-paying members are very hard hit and can’t afford the dues, consider making case-by-case exceptions based on need rather than a flat or substantial decrease until you know much more.
The most important thing to remember is that if you decrease your dues by nearly 40%, it’s going to be impossible to raise them by that percentage in the near future. So, if the service is valuable at 100% and a worthwhile investment and you discount it to 60%, the 2021 question is why can’t it be 70%?
It will take you a long time to get back to even and I bet you were planning dues increases in the future. So the board will need to weigh out when the worm turns.
Question: Converting AGM/conference to virtual. Should we charge same amount/discounted or free? Same with sponsors. If we get an app with networking etc, do we try charging the same exhibit fees/discount or free?
Answer: Lots of uncertainty with these concerns and I appreciate that there are a wide variety of expenses and risks.
The going perception is that virtual is less expensive than in-person. It will be hard to charge the same for the AGM so the question is how much less.
Standard economic elasticity of demand would suggest that as price changes, demand changes. Again, not knowing the circumstances, I can’t give you a number or do that analysis in the blind but you might presume that the lower the price (including free) the more people that will attend but the perceived value will also shift.
With regard to sponsors, the best thing to do would be to do an early-bird discount on the AGM and get a baseline number of attendees and then ask your sponsors where they are with their ability to allocate funding given your baseline numbers.
Some will want to support regardless, some will base it on your preregistrations, others won’t be able to support at all.
Question: I’ve presented a worse case scenario budget and a best case scenario budget to my finance committee. How should we move forward with determining a budget?
Answer: I would use the worst-case scenario of the budget for the reasons outlined in the webinar.
When you’re thinking through all the challenges you are facing (and the challenges you are not facing such as stockholder value), you will want to come to the table as prepared as possible for the worst-case scenario and be happily surprised or able to have more flexibility if the worst-case scenario is wrong.
One caveat is to not be absurdist in your worst-case scenario planning. If you know that you have a monthly pledge of $20K and the donor says that it’s not going to be a problem, it would be odd and inappropriate to budget for $10K, for example.
Question: Running a private school for 80-100 kids but the State will decide if we can reopen. How to pick a scenario? They won’t decide until Aug two weeks before school starts. Fiscal year starts tomorrow.
Answer: Any scenario should involve not only a delayed reopening but also a forced re-closing or multiple re-closings or partial closings (meaning that some classrooms have to go virtual).
Your budget should reflect the most expensive proposition, which is actually (I think) having both online and in-person schooling at the same time.
If you stay open or it’s all in person, you save on tech costs and other variable expenses. Since I assume you are receiving tuition, you will have demands on services that will require that you provide education no matter what the State decides or they’ll withhold payment.
You can always amend your budget but my recommendation would be to amend up rather than down.
That means that if tuition comes in and you spend less, you have more money later rather than having to make cuts midyear.
Question: How do we budget for the upcoming 6 months to a year when the unknown of shut down, revenue, etc.. Especially when it comes to staff pay, raises, revenue…?
Answer: At least on items such as raises, you’d need to say no for now. That part is simple and what most organizations with uncertainty are doing. If things are good and stay good, raises can either be applied later, retroactively, or be provided as bonuses.
Depending on your circumstances, you may need to have trigger points where furloughs or pay-cuts occur based on your burn rate and your break-even analysis as discussed in the webinar.
It’s also important to get a handle on the unknowns (the known unknowns and the unknown unknowns) meaning that there are somethings that you can get closer to knowing like whether donors will make a gift this year or whether people will pay for your programs.
Calls and surveys can limit the unknowns in this case. Distinguish that from the unknowable unknowns like whether the economy will crater and people can’t give or pay for your programs or whether there will be more closures, etc.
Don’t stop your learning with Cherian at this blog post, check out all of Cherian’s webinars at CharityHowTo here!