Surviving a Cash Flow Crisis

What to do when the cash runs out? (Photo by Flickr user NoHoDamon).

One of the most difficult challenges of running a nonprofit, but one of the least discussed, is surviving a cash flow crisis. If you’re really lucky, you may never encounter the “crap, we’re going to run out of money before the end of the month” moment, but most folks who work for small or mid-sized nonprofits have experienced that moment at least once or twice. After you negotiate the immediate crisis you’ll need to buy yourself some breathing room and then tackle whatever systemic failure led to the cash crunch in the first place, and if happens more than once in a while you’ll need to grapple with the possibility that your organization simply doesn’t have a viable business model. But first you have to survive the crisis.

Some tips for surviving to fight another day:

  • Stop all of your discretionary spending. All of it. No computers, cameras, pencils, hotel reservations, coffee, or anything else. If it’s something your organization truly can’t live without, then do whatever you can to beg, borrow, or steal it.
  • Figure out what bills you can ignore. Some accounts payable won’t notice you haven’t paid them for a cycle or two. Others might notice but not care. Ignore (for now) any expense you can get away with ignoring.
  • Identify every automatic subscription expense. Cancel any you can get away with, and where canceling will cause you to lose critical data or severely hamper your organization’s ability to do its work, downgrade to the cheapest possible service level.
  • Identify every vendor to whom you owe money or will soon owe money. You may be able to directly approach some of them about your predicament to work out a payment plan. In many cases, for instance, a landlord would rather work out a deferred payment arrangement with you than kick you out (especially if you don’t have a habit of coming up short on the rent). For other vendors, you may need to take a more aggressive approach, and simply pay them a lot less than you owe them, perhaps with an explanatory note. As one of my favorite CFOs points out, a vendor is very unlikely to sue you if you are paying them something, even if it’s modest.
  • Talk to your staff about delaying payroll or in some other way reducing what you pay them in the short term. It’s a tough conversation to have, but for many nonprofits payroll represents a very large proportion of the monthly cash burn, so buying some time on payroll obligations can make a big difference in the short-term.
  • Identify any revenue stream you can accelerate. Any accounts receivable that you can get to pay you now instead of in a month? Any foundations who might be willing to cut you a check a little early? Any committed membership donations you can ask for early delivery on?
  • Calmly (but quickly) reach out to all of your mid-size and larger donors and ask them to make a one-time extra donation to help you out of this pinch. Before you start reaching out, arm yourself with at least something that looks like a plan to both stop the hemorrhaging and then recover your longer-term financial health. It’s much easier to ask for help in a crunch if the donor feels you really can solve the crisis and fix the deeper problems as well.
  • Think about donors that might not be directly invested in your organization specifically but might place a lot of value on your role in the community. Some of them might be willing to help on a one-time basis in a crisis if they know you and value your contribution even if your work isn’t part of their normal philanthropic giving.
  • Explore getting a line of credit from a bank. This is expensive money, and of course it’s easier to secure a line of credit before you find yourself in a crisis, but especially if your organization has some real assets, you might be able to come up with some short term cash.
  • Credit card debt is expensive and dangerous, and once you get into a hole it can be difficult to get back out, but in a real cash flow disaster it can be a lifesaver.

The problem with all of these strategies is that they truly are short-term solutions. They won’t generate any additional revenue, for instance, but at best they’ll simply accelerate payments you were already counting on for use in the future. Most of these spending cuts don’t change your organization’s burn rate; they simply push expenses into the future, where they pile up into even more ominous obligations.

Although surviving the cash flow crisis is your first priority, you should tackle this as best you can with the long-term challenge in mind, and you need to turn your attention to solving your long-term problems (whatever it was that led to the cash flow crunch in the first place) as soon as possible. You have to tackle the structural issues – too many staff for the revenue, overly expensive infrastructure investments, or whatever the problems are – or your organization will find itself dealing with the short-term cash crunch over and over again.