We are in the midst of the 2019 novel coronavirus (COVID-19) pandemic and our lives are evolving on an almost daily basis. Industries globally are feeling the financial effects of the virus. The travel industry, for example, which is comprised of airlines, hotels, and parts of retail, restaurants, and technology is estimating that the drop in the industry’s economic activity could be as much as US$1 trillion. And the music and film industries are each projecting a US$5 billion loss. Millions in revenue are being lost daily across most industries.
And in the nonprofit sector, the revenue losses continue. Many large-scale nonprofit conferences, convenings, galas, and meetings have been canceled, and more events are expected to be canceled this month. Thousands of event registrants are being notified almost weekly of cancellations. More intimate in-person meetings are also being canceled or postponed. Many organizations have closed their physical offices and asked their staff to work remotely. The coronavirus outbreak is fast-moving and has disrupted organizations and our lives generally. We are in a novel holding pattern, and for many people and organizations, panic and uncertainty have started to set in.
Unfortunately, no one knows exactly when this pandemic will end. I do know, however, that the only thing that can carry us through this time is resilience – of people and of the organizations we build. We are built to withstand adversity.
As with any other crisis, the COVID-19 outbreak needs to be effectively managed by leaders who are supported by strong infrastructure consisting of robust systems and engaged people with sufficient capacity. In that way, this crisis is not so unique, and it may not be the last crisis we encounter. At this point, many nonprofit organizations are unable to determine whether their systems, operations, and programs can survive this or another crisis and are struggling to keep their heads above water, so to speak.
Accordingly, grant making, funding, and the evaluation of whether new grants or funding should be awarded should not be suspended in this environment; on the contrary, this funding is critical to the current stability of the sector.
I share six recommendations below that consider efforts from both funders and fundraising nonprofits so that they each have active roles in creating solutions and forging a path forward in this crisis and beyond. In this way, nonprofits are not passively waiting for funders to help them during this pandemic.
My recommendations focus primarily on benefiting marginalized communities that are most impacted when funders and nonprofits face resource restrictions and on people of color-led organizations serving these communities that tend to historically receive the least amount of funding even outside of a crisis; these communities and organizations are often the most vulnerable, particularly in times of uncertainty.
These recommendations are based on my interactions with clients and nonprofit leaders around the globe who are experiencing and responding to this pandemic in their different environments and geographies:
Meaningful conversations. It should go without saying, but funders and nonprofits should be talking with each other about nonprofit sustainability. These conversations should be occurring between funders and their grantees and funders and nonprofits that are not currently receiving funding from the funder, if those nonprofits are critical parts of the ecosystem in which the funder and its grantees operate (see the ecosystem approach recommendation below). These conversations will vary in focus based on the funder and nonprofit. Immediately, however, the focus should be on identifying immediate needs, expense increases, and revenue losses that are significantly impacting the nonprofit’s budgeting, and determining how to stop any financial hemorrhaging, so to speak, occurring within the nonprofit. This initial conversation will highlight the funding already provided and used, outstanding funding, and tracking that funding to meet the grantee’s needs, and will also allow funders and grantees to determine if current grants should be amended to meet those pressing needs. As I have stated previously, grants should be flexible, innovative, and likely for general support so in uncertain times like these, restrictions likely do not need to be removed because flexibility was built into the grant in the first instance. These conversations should also address the nonprofit’s revenue streams. Many nonprofits’ revenue is not diversified. So, when crisis hits, if that homogenous source of revenue is at risk, the nonprofit’s business and financial models and thus the nonprofit’s viability itself is at critical risk. These meaningful conversations should occur immediately and should remain a cornerstone of the grantor-grantee relationship.
Ecosystem approach. The nonprofit sector is interconnected, and COVID-19 has only reinforced this point. Instead of providing a grant to a nonprofit for its singular needs, funders and nonprofits should consider who else within a particular ecosystem may need support. This ecosystem-based funding can still be received by a singular organization, but coordinated among many organizations. This integrative approach better ensures a nonprofit’s sustainability than providing isolated funding to a nonprofit based only on its immediate needs in this crisis. For example, if a nonprofit is part of a cohort of organizations or is part of a supply chain of programming or resources for a community, supporting that singular nonprofit without regard for the ecosystem in which it sits may not effectively contribute to that nonprofit’s sustainability, if the remaining entities within the ecosystem do not receive any support and instead are left to fail. Therefore, both nonprofits and funders should consider other nonprofits that are integral to the ecosystems in which those nonprofits operate when requesting or providing funding in the current environment. The funding award can thus be structured to not only meet the nonprofit’s immediate needs during the crisis, but contribute to the overall stability of the ecosystem in which the funder and nonprofit operate.
Innovative funding tools. To the extent funders are able to do so, they should increase their funding to support emergent needs at their grantees and nonprofits in their grantees’ ecosystems. Still, unplanned, increased grant making usually means that the funding for the unplanned grants comes from another part of the funder’s budget. Having worked with philanthropies for over a decade, I have seen this decision being met afterward with cuts to existing or planned programs and initiatives because the amount of funding for grant making was determined by an independent board or by the founder. These cuts usually have serious and asymmetric consequences for marginalized communities and people of color-led organizations and thus should not always be an option. Increased nonprofit needs do exist in this current environment, however, and could be addressed by funding that goes beyond typical grant instruments, allows funders to retrieve their funding if certain circumstances materialize, and does not claw back funding from nonprofits and ultimately the communities they intend to serve. Recoverable grants, reinvestment grants, and zero or low interest “bridge” loans to cover any unexpected expenses or lost revenue are examples of such tools. This type of innovative funding makes it possible for a funder to retrieve a portion of its grant-making budget that it did not plan to expend when it supported a grantee’s immediate needs, but also takes into account the grantee’s financial position, its ability to repay, and the dynamics of the situation. At their core, these funding tools should be designed to diversify a grantee’s revenue and preserve its ability to receive additional funding even if the initial funding is not repaid. Depending on the nonprofit’s situation and the funder’s resources and capacity, innovative funding tools may work well to provide security to nonprofits during and after this crisis.
Flexible support. Providing support that is responsive to a grantee’s immediate needs, but allows the grantee to grow sustainably is the kind of flexible support that nonprofits need generally, and even more so during this time. Throughout this crisis, funders should think of ways to provide this flexible support and nonprofits should request it, based on their needs. This flexible support comes in the form of both approach and funding. For example, general support and hybrid (e.g., part project, part general) grants are ways to flexibly support nonprofits’ sustainability and not limit funding solely to a nonprofit’s immediate needs. Moreover, funders should be flexible in their interactions with grantees, including conducting diligence for the funding award and the way in which information is shared between funder and grantee or reported about the grant by the grantee. And instead of only requesting or providing cash, consider requesting or providing in-kind assistance, such as for attorneys, accountants, operations, and information technology (IT). Many nonprofits may not have access to these resources that are needed during this time as a result of canceled events and remote working environments, such as the need for contract reviews, additional software subscriptions and licenses, and cybersecurity needs, for example. By not having these resources, many organizations are creating exposure for themselves, which ultimately impacts their longer-term sustainability. This provision of in-kind resources also extends to the ultimate beneficiaries in under-resourced communities. For example, students who received free meals in schools that are now closed indefinitely, still need those meals if their families cannot afford to provide them. Finding ways to leverage funding and corporate and other relationships to provide this kind of flexible support to grantees and the communities they serve is crucial.
Cash reserves. When a nonprofit does not have a safety net for its financial ebbs and flows to maintain its operations, it puts its sustainability at tremendous risk. Cash is what often makes an organization run as it pays for the operating expenses of an organization, including salaries, facilities, and business supplies. Determining how much cash to have in reserve is based on an analysis of an organization’s plans, use of cash, stage of business, and cost to acquire additional cash. On average though, it is suggested that businesses keep at least three to six months of operating expenses as cash reserves; about 50 percent of nonprofits have no more than three months of cash reserves. In fact, many of the nonprofits that are teetering on the brink as a result of this crisis are likely the organizations that had little to no cash reserves in the first place. And it is uncommon to request or provide funding to create a cash reserve. Now is the time to create or fund one, however. Funding this reserve could be part of a general support, flexible funding, or hybrid funding award. In this environment, in order to contribute to a nonprofit’s short and longer-term sustainability, providing a nonprofit with funding to create or fund a cash reserve should be supplemental to the funding needed to address a nonprofit’s immediate needs.
Crisis/Risk management. The coronavirus outbreak has highlighted the absence of crisis management teams, protocols, and plans in both nonprofits and funders. Now is the time to design and staff that team, design those protocols, and create those plans. I encourage organizations to understand what was missing in their response to this crisis, what would have been nice to have in place, and what can be done to effectively move forward in the event of another crisis. Discussing risk management and ensuring that a crisis management team and plan are in place is essential to ensuring that a nonprofit’s operations have business continuity.
These recommendations are not radical. In fact, they work well generally and especially in crises because they center around providing innovative, flexible, and responsive support to nonprofits to ensure their sustainability. Our ability to effectively come together during this time shows that we are strong. And we can only get stronger by continuing to build nonprofits that can survive this crisis and sustain their impact long after this crisis ends.
Please let us know if you have noticed ways in which nonprofits and funders are responding and collaborating well during this time.
If you would like to receive a copy of Build Up’s COVID-19 Nonprofit Funding Action Plan, please email us.