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Now is the time for good cash flow management and projections

Now is the time for good cash flow management and projections

As is our habit, we have been thinking about current financial management issues for non-profit organisations.  We believe that cashflow planning and projection is going to be particularly critical for surviving the months ahead.  The pandemic is affecting different types of organisation in different ways, but most have suffered (or will suffer) some loss of income from sources as diverse as grant funding, fundraising events, donations and income from services or sales through shops.  The pandemic may also create a shift in focus of public giving, perhaps towards local or social welfare NPO’s as, despite the global nature of the crisis, donors may direct their support closer to home.

Amidst all this uncertainty, the importance of understanding predicted bank balances is critical to initiating action to mitigate cash shortfalls. But what actions could be considered?

  1. Funding partners, although themselves hit by the effects of the pandemic, are mostly proving to be very supportive and so could be open to renegotiating payment schedules or the terms of funding agreements. As an example, many organisations have responded to the practical needs of the communities they work in by providing food and other relief supplies, despite the fact that this was not planned or costed into their fundraising proposals.  For many others, there have been significant costs and effort to deliver services in new, electronic ways (e.g. by providing training, counselling and advice services online or by streaming workshops and seminars) that may not be covered by existing funding agreements.
  2. Linked to our previous newsletters, there is a short-term option to utilise government’s support measures, particularly the Temporary Employer/Employee Relief Scheme (“TERS”), if your operations or activities have been scaled down, and the extension of the Employment Tax Incentive (“ETI”).
  3. Bank interest rates have been cut, and while this is positive for anyone with loans with a variable interest rate, it means lower returns for organisations with money market or call accounts.  This will need to be considered if this is a significant part of an organisation’s cash flow. It may be tempting to consider borrowing money at the low interest rates.  We strongly advise against increasing debt and possibly worsening the financial distress of your organisation.
  4. Some institutions are offering payment holidays in relation to loan repayments.  In the short term, this may seem very attractive, however, remember that the debt remains and increases as interest is still charged and the full amount plus interest will ultimately need to be repaid and could extend your repayment period, by more than the period of the payment holiday.
  5. This might be the time to use the reserves that the organisation has managed to build up but, before this is contemplated, other options should first be exhausted as it may be very difficult in future to rebuild those reserves.
  6. In order to maximise resources and prioritise the interests of those they support, organisations should ensure their control environment is as strong as possible, especially around the authorisation and approval of commitments to spend and payments; at times of crisis, it is too easy to overlook proper procedures and controls.
  7. Based on the collaborative response to the crisis, there may be instances in which organisations could consider merging where they cannot survive alone in their current form.
  8. The elephant in the room (or at least in this newsletter) is the need to consider difficult choices on when and what activities, services and related costs should be cut. NPO’s are an essential part of society and provide many services on behalf of the State – if they fail, it is those who rely on their advocacy, campaigning or service delivery that will suffer the consequences.  We think that one should make the difficult choices before it is too late – some services are better than none!

The positive action and generous giving that has been seen in the response to the pandemic shows that we do have an innate desire to support each other but only time will tell whether this will translate into a sustained rise in volunteering and giving levels.  We understand that over 170,000 individuals and entities in South Africa have made donations to the Solidarity Fund but it is too early to understand the impact of this crisis, not just on resourcing of the NPO sector but on our society and its glaring inequities.  In the meantime, careful monitoring of cash flow will reduce the risk that the NPO sector is diminished by the financial impact of the pandemic.