Autumn has arrived and the end of the year is much closer than the beginning. The fourth quarter can make or break your financial results and there are a number of things your organization should be talking about right now to help ensure the greatest possible success.
Talk About Cash
Many of our clients are finding their balance sheets very strong with more cash on hand than they’ve seen for a long time. The temptation, especially among volunteers, is to put this money away for a rainy day. We believe that a strategy solely focused on storing away will likely cause that rainy day to arrive far too soon. If you were restoring a classic car, you wouldn’t just work on the frame and the body. You would also want it to run smoothly and dependably so you could get out and really enjoy it!
Develop a plan to balance the long-term needs of your organization in conjunction with investing in your economic engine. Yes, put away reserves with clear guidelines for how and when to access. In addition, your efforts in eliminating deferred maintenance, restoring benefits, raising staff pay, bringing back additional employees and seeking new opportunities to serve could yield solid returns both now and over the near term. You need a strong balance sheet along with solid sustainable operations to begin to get back to “normal.”
Whether you are in a season of abundance or scarcity, keep the discipline of modeling cash flow to avoid any unexpected bumps. Share this information broadly so everyone is on the same page.
Talk About Debt
Review your loan documents and seek to understand all the terms and conditions. Know your interest rate, payment schedules, amortization period and when the notes need to be refinanced from memory. Also pay special attention to any covenants, both affirmative (things you promise to do) and negative (things you promise not to do) and when compliance is measured. Your organization has likely committed to maintaining a certain level of liquidity and to a minimum amount of “debt service coverage.” Project now whether you believe you will be in compliance at year-end. If not, (a) take steps to mitigate the situation and (b) raise your concerns with your lender as soon as possible. The amount of lender flexibility decreases dramatically the closer you get to your fiscal year end.
Talk About The Future
It’s easy for non-profits to become fixated on 12-month cycles. You prepare a budget, gain consensus and board approval then strive to achieve that budgeted bottom line. You may (and should) begin to forecast during the year to add a layer of expected results alongside your budget and actual results. The cycle repeats year over year and we judge our success in 12-month compartments.
Great organizations think farther out, and not just during strategic planning cycles. Develop the habit of forecasting operating results 3-5 years out on a rolling basis. Update forecasts at least quarterly and consider how the forecasted results impact your cash flow, your balance sheet, debt covenants etc. The future is uncertain, yes, and perhaps never more so than now. Your boards and lenders will be seeking this forecasted information if they haven’t already. Why not be proactive and bring it to them before they even ask?
As always, if you have specific questions about how to apply these suggestions to your unique situation, please reach out to our team and we will be happy to talk.
How else you can plan for year-end:
Thinking about year-end philanthropy? Bruce shares his thinking on 5 Ways to Adjust your Fundraising Plan.
Kellie shares 5 Ways to End the Year Strong and Strategic relative to Strategic Planning.