By: Steve Zimmerman
Days are getting longer, temperatures are warming and this long, dark, cold winter will soon yield to spring. With cases, hospitalizations and deaths falling, vaccinations increasing and new COVID-19 relief being passed, we seem poised to turn the corner on the pandemic. But, while infection rates may subside, the road to mental, economic and societal recovery will still be long and hard.
In March 2020, we wrote about finance “must-do’s” in the time of COVID for nonprofit organizations to move from sustainability to survivability. One year later the imperatives we outlined remain true: understand the organization’s financial condition and the urgency to act, hold the dual bottom line of impact and finance, include everyone in the discussion and communicate consistently. What also remains true is the uncertainty nonprofits face as we collectively move forward.
Like society, every nonprofit experienced the disruption of the COVID-19 pandemic, but the severity and the outcome varied by mission type, budget size and city. In some cases the disruption resulted in closure, while in others it served instead to strengthen the organization. Arts and culture organizations, for example, were hit especially hard, with earned revenue streams being reduced to zero as shutdowns dragged on. Some social service organizations, however, saw increased access to funding and – even with higher costs from technology or protective equipment – saw revenue and surplus gains as the year went on.
As a whole the nonprofit sector made some long-sought strides: foundations loosened restrictions, grant processes became nimbler and despite the economic disruption, the early indication is that individual giving increased last year. Time will tell whether the increase was enough to turn around the multiyear decline in percentage of households giving, but there seemed to be a budding renaissance in philanthropy – perhaps buoyed by an understanding that we’re all in this together. This awareness together with the growing recognition of systemic racism has shined a spotlight on diversity, equity, inclusion and justice that could enable us to build a stronger nonprofit sector and thereby stronger communities.
Out of hardship come lessons. As nonprofits look to the future, there are three lessons we can take from this past year to position organizations to climb out of the pandemic to new heights. Organizations that thrived relied on existing strong relationships. They had a shared understanding among board and staff of the organization’s financial and impact model. And they demonstrated the courage to make decisions and change quickly.
Organizations with deep relationships were able to navigate the complexities of the pandemic more easily. With too much to do to meet an organization’s mission and too little time to accomplish it, relationships often fall by the wayside. Let’s face it, who really has time to get to know their banker? However, these relationships proved helpful as organizations negotiated the paycheck protection program and sought (and continue to seek) funding and forgiveness of their loans. Likewise, relationships with donors became essential as organizations sought funding. Meeting potential new donors was challenging, at best, with events being sidelined. However, organizations that had a meaningful relationship with donors prior to the pandemic were able to steward and cultivate them, often resulting in increased engagement and giving.
Relationships matter to organizational impact as well. The pandemic forged new partnerships with community agencies collaborating around virtual tables to meet the needs of constituents. Relationships with peer organizations and community leaders helped ensure a seat at the table.
Lastly, being intentional about relationships with staff and board, assessing whether they were reflective of the broader community and surfacing unconscious bias allowed for better and more inclusive decision-making. Good ideas know no boundaries. As organizations adapted programs to the changing needs of constituents and influences from COVID, having more voices to make sense of what was happening allowed for better, more innovative ideas.
Relationships don’t happen by accident. They require intentional time and energy. The chaos of the initial weeks of the pandemic did not lend itself to building these relationships. Rather, organizations had to rely on the relationships they had previously built. Too often, in the day-to-day existence of a nonprofit, relationships become transactional as a means to accomplishing the organization’s mission as opposed to sharing values. As organizations move forward, they need to ask, “Who do we need with us to achieve impact? How will we get to know them?” and then invest the time necessary to develop authentic relationships with them.
Yes, relationship building is time consuming, but it will pay lasting dividends every day and, especially, in the next crisis.
Organizational Clarity Is Important
In times of crisis organizations are faced with a myriad of decisions. During the pandemic, as organizations adapted programs to respond to closings or to implement social distancing protocols, it was difficult to hold both the programmatic and financial components together. For example, organizations that faced cash flow hurdles understandably made decisions focused more on finances than impact. The challenge is that without an understanding of the financial drivers of the organization, program staff and some board members might not have been able to participate in the discussions and decision-making. Even worse, decisions might have been made that inadvertently diminished impact more than necessary.
Having clarity and a shared understanding among board and staff around the organization’s intended impact, core competencies and financial structure allows people to meaningfully engage in these decisions. This clarity, however, doesn’t happen by osmosis. Each person involved in an organization has different strengths, but one shared purpose – to steward the organization to accomplish its mission now and into the future. When organizations spend time at board and staff meetings discussing the foundational elements of an organization, evaluating impact and building financial literacy, they are inviting everyone to participate in leading and strengthening the organization and mission.
A meal delivery organization we worked with in Baltimore, Maryland, spent time over the prior year making sure everyone understood the organization’s theory of change, how to read financial statements and how these pieces were interconnected. As a result, during the pandemic they were able to split into teams, with some members of both board and staff focused on shifting operations to meet daily needs while others explored options for the long-term business model. These two important processes would not have been able to be accomplished at the same time if each member hadn’t understood the fundamentals.
As organizations move forward, leadership needs to continue to invest in the professional development of staff and board members along with managing day-to-day operations. It may seem less pressing in the moment, but the organizational clarity it brings will allow everyone to participate in leading through the next crisis.
Decide to Change Quickly
The pandemic brought disruption to every business, and nonprofits were no exception. Nonprofits adapted programs with speed and innovation, once again proving false the perception that they are somehow slow or inefficient. Meal delivery organizations shifted to preparing and serving frozen meals. Mental health organizations rapidly adopted tele-health, and homeless shelters quickly began COVID testing and social distancing protocols. Even arts and culture organizations reeling from the stay-at-home orders embraced technology to provide virtual exhibits, performances, and classroom instruction. Board and staff leadership, working in concert, reviewed financial statements, cash flow forecasts and often made difficult decisions to close programs and furlough or lay off staff.
For some organizations, this level of efficiency was new. Pre-pandemic, cumbersome processes and busy schedules might have delayed decision making. In many board rooms and leadership meetings the well-intentioned desire for data led to a never-ending search for the next report which would illuminate the answer. Similarly, board and staff, worried about making the “wrong decision,” would invoke “best practices” as a type of playbook from which to lead their organization.
The reality, however, is that there is no best practice that applies to every organization. Missions, budget sizes, reserves, strategies, revenue streams and even community dynamics are all variables that influence the effectiveness of any given practice. The pandemic exposed the fallacy of some beliefs such as “nonprofits must have an earned revenue strategy to be sustainable.” Rather, it was the philanthropic community that saved many organizations that rely on earned revenue. This is just one example of how all “best practices” need to be scrutinized.
Strategic decision making inherently involves predicting the future. Even with the best data, there is always uncertainty. Leaders need to be courageous and make the best decision with the information available. With special events cancelled, revenue forecasts uncertain and cash reserves decreasing, brave leaders during the pandemic looked at the best information they had and made difficult decisions. This is a practice that should be continued.
Set a timetable upfront, look at the best data available and decide how to move forward in support of the dual bottom line of mission impact and financial viability.
Invest in relationships, cultivate clarity of the organization’s impact and strategy, and decide to act quickly. There are countless examples of how the nonprofit sector exhibited these lessons over the last twelve months. As more people get vaccinated, restrictions lift and we emerge from the pandemic, communities must recognize the enormous role nonprofits played in protecting and serving our neighbors, fighting for justice and enriching our lives by providing virtual and real points of connection. A strong nonprofit sector is crucial to building the types of communities we want to live in – and nonprofits that can learn lessons from the pandemic and integrate them moving forward will be better positioned to thrive, weather the next crisis and build a stronger, more just and equitable society.