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Many organizations underwent significant disruption during COVID-19, but a thoughtful approach can help you sustain financial health and stay true to your mission.

Growth strategies

Building Financially Strong Organizations During Disruption

  • John Tauer
  • 3/16/2021

Key insights

  • The pivot to a new digital world in 2020 brought significant implications for nonprofits across fundraising, recordkeeping, and management.
  • While many organizations weathered the financial storm well, there are still opportunities to improve.
  • Consider an organizational assessment to gain insight into your nonprofit organization’s overall state of affairs.

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Many organizations are under financial strain like never before, due to the complex fallout from COVID-19 and the accompanying economic downturn. Today, nonprofits of every type — social service, health care, housing, education — are responding to both business challenges and volume changes as well as new compliance and reporting requirements.

Now is the time to proactively position your organization to stay financially strong and navigate disruption, all while staying true to your mission.

Develop a sound fiscal position

Nonprofits have to do well to do good. While their services are typically funded by program fees, grants, and donations, overhead and operating expenses are very real, making these organizations often dependent on government funding, grants, donors, and endowments to continue doing their important work. Continually assess your current state compared to your goal state. Evaluate your place in the environment, risk assessment processes, and programs to make sure your organization has enough reserves to continue performing services to the best of its ability.

Understand current disruptions

The events of 2020 have disrupted tax-exempt organizations in several new and acute ways. For starters, the need for social distancing quickly thrust organizations — and the rest of us — into a digital and remote environment. You likely had to rethink operations, from administrative work at the office to how you deliver your programs and generate funding. In-person activities and direct contact with the communities served were put on pause, impacting both program delivery and support.

After a period of disruption, it’s important to review how overall performance was affected. Assess how these changes have impacted your organization operationally and financially and make adjustments as needed to your people, processes, and technology. Determine whether you have the resources and team in place to grow financially and deliver services cost-effectively. Recognize any current challenges so you can adapt and innovate as needed. 

Stay compliant

The tax-exempt status is critical for maintaining the integrity and viability of your nonprofit organization. Annually review and update processes for full compliance with government agency regulations, especially after a year like 2020 when many significant changes occurred. To continue receiving funds, tax exempt organizations are expected to do right by all the stakeholders while maintaining transparency with the public.

Financial reporting is a major part of maintaining organizational trust. Each funding source comes with its own reporting and audit requirements. If your organization accepted stimulus funds or financial assistance in the wake of COVID-19, or found new revenue streams, consider additional compliance requirements and verify that your financial reports reflect the new funding sources. Overlooking requirements can result in a loss of funding or make it difficult to acquire new funding. Keep your board or governing body apprised of these developments, so they can make informed decisions on programs. Reliable information and full compliance are essential to setting a course for the future.

Consider opportunities to reset

In most cases, financial health is just the tip of the iceberg. Nonprofits are complex organizations of people, processes, and systems serving people with a wide variety of needs; a balance sheet is simply a scorecard, leaving deeper issues lurking beneath the surface. While a few nonprofits are reaching new highs in revenue received and program services delivered, many recall missed opportunities and maintain hesitation for future years.

There has been immense digital transformation from both an operational and administrative standpoint in the wake of COVID-19, and much of that wave is here to stay. Reflect on how this technology can help boost your nonprofit’s performance going forward. Consider opportunities to change your cybersecurity approach, program delivery, business systems, and internal controls.

Then, determine whether your organization has the right resources in place to implement these changes and lead you into the future. Additionally, rethink relationships with office space, digital systems, and service delivery. Being proactive is critical to maintaining financial stability, be it through innovation, careful planning, or thoughtful management.

How we can help

At CLA, we help tax-exempt organizations retool and innovate for tomorrow. We begin with organizational assessments, in which we review each facet of a nonprofit, from accounting and expenses to people and systems. We can provide guidance as you establish new compliance programs and connect you to cutting-edge solutions that can transform workflows. Along the way, we find opportunities for improvement, so your organization can continue performing meaningful work with uninterrupted peace of mind.

Give Your Financial Future Its Moment
  • John Tauer
  • Managing Principal, Regulated Industries