March 17, 2020
Nonprofits: Continuity Planning for COVID-19 (and Other Disruptions)
Posted by Restructuring Team
Although we don’t yet know what its ultimate impact will be, the COVID-19 virus highlights how important it is for nonprofit organizations to be doing business continuity planning. It’s vital that nonprofits examine their operations to understand how extended disruptions can affect their employees, clients and the communities they serve.
Even a few hours of response planning will prove more effective than being indecisive or ignoring the potential threats to your operations, staffing and funding sources.
In broad terms, an effective response plan involves these areas:
- Identifying key personnel and functions
- Developing an employee communications plan and updating staff as events and your plans evolve
- Testing remote access to key operational systems
- Coordinating with clients and other community leaders
- Assessing your short-term and mid-term financial situation
Start at the Top
A critical step in effective continuity planning is identifying the most likely, and the most important, implications of an extended disruption. Think about a variety of situations or events that could challenge your organization and your ability to fulfill your mission.
These challenges can be especially acute for nonprofits, which may have fewer response options than for-profit companies. For instance, many businesses are ordering more employees to work from home — something that may not be feasible for a community service organization that works with clients directly. Similarly, a community health organization may find its services in greater demand, despite the operational and staffing challenges a pandemic may pose to its operations.
And unlike a natural disaster with immediate effects that tend to last a few days, a virus pandemic can cause disruptions for weeks and months. This extended period makes short-term planning difficult and reinforces the importance of building adaptability into your plans.
But note, you shouldn’t let adaptability stall decisions. A common mistake that many organizations make when faced with multiple choices, none of which may be optimal, is not deciding anything. This indecision costs valuable time in the earliest stages of a potential crisis.
After senior leadership identifies key areas to focus on, involve functional leaders to bring different groups together. A key to success in this stage is maintaining a focus on important functions without getting lost on tactical details, such as employee contracts, that can lead the team to overlook more strategic areas, such as communicating with clients and other community leaders.
Communications will be a key consideration in keeping the organization operating smoothly. Identify who will be in charge of maintaining communications with employees, clients, donors and other stakeholders so everyone understands the effects of disruption and, more important, how the organization is responding.
Managing Expense and Revenue Disruption
It’s also vital to address the financial implications of an extended disruption. Many organizations will face the unfavorable combination of expenses rising while revenue declines or is interrupted. For example, a community center may need to have its facilities disinfected or arrange for contingent workers to fill important roles.
A nonprofit may also face disruptions to its varied funding sources. A school, for instance, may need to consider refunding money for tuition, or a senior center may have to cancel a trip. In these cases, extending the school year or rescheduling an event may be a better option than issuing refunds.
Similarly, clients who are suddenly out of work may not be able to afford needed services. Other potential challenges may include a need to cancel planned fundraising events to reduce the risk of social contamination, or the possibility that other organizations that provide grants may have disruptions of their own that threaten your funding sources.
It’s important to consider the most effective reaction to a financial disruption. You may have to ask vendors for discounts and extended payment terms and notify donors and board members about potential cash-flow problems.
In any of these unwanted situations, clear communications and explanations of how you plan to respond and recover can be helpful in inspiring patience and making the financial effects of the disruption easier to withstand.
If you decide to continue paying your staff during a disruption, you need to evaluate how much you’ll pay them and for how long. You also need to identify who’s going to administer those payments, as well as any unemployment insurance claims that may follow. If your current team is affected by the disruption or overwhelmed by the volume of work, bringing in outside help may be necessary.
During this aspect of your planning, make sure your policies and practices are consistent with advice from public health officials, and comply with local, state and federal workplace laws.
Maintaining Your Staff
Think about the functions that need to continue, and who will perform those roles. If there is time, this may be an opportunity for cross-training so someone can fill in for a team member who becomes sick or is caring for a sick family member.
Consider key roles such as your finance team or payroll. If you lost someone for 21 to 30 days, who would be able to step in? If a role requires technical or regulatory expertise, arranging to outsource that role during a disruption may be a more effective option than cross-training.
Along with thinking about who’s going to do the work, think about how (and where) the work will get done. If local travel restrictions are imposed, make sure your team has remote access to key systems the organization needs to function. Cloud and mobile access can be very helpful in making it easier for your staff to get work done.
Cash Is King
With the current disruption, many organizations will face weeks, if not months, of exceptionally poor business conditions. For most, the income lost in this period represents a permanent loss rather than a timing difference and is putting sudden, unanticipated pressure on working capital lines and liquidity.
Some organizations are able to maintain adequate headroom by connecting with major donors or making drawdowns on their credit lines. Others are finding that they need to approach their banks to arrange temporarily larger facilities or covenant resets/waivers.
Smart organizations will update their short- and mid-term cash flow plans to be more conservative and incorporate the impact of the new headwinds. Many organizations will also rely on third parties with experience in crisis cash planning who can be more objective with the approach and assumptions, as it is easier to get support from outside lenders or donors when they know the plan was well vetted, especially if the need is greater than anticipated.
As you develop your continuity plans, it always helps to keep the main goals in mind: ensuring your organization and operations can withstand the short- and medium-term implications of the disruption and be better positioned to recover when the market returns.
You can use our Crisis Planning Checklist to help minimize potential disruption to your employees and operations. Have questions or need some assistance? Reach out to our experts.
Our Restructuring experts, Michael Hogan and Alex van Dillen, are Silicon Valley’s most experienced restructuring specialists for creditors, investors, boards, and executive management of financially distressed companies. They help companies prepare for downside eventualities to better understand their options, prioritize them, and drive toward the most effective outcome for stakeholders involved.