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Financial Contingency Plans (Managing Risk During Difficult Economic Times). YWCA Southwest/Delta Region Regional Conference January 31, 2009 Presented By Cheryl Black, TANO c 3 Accountant Texas Association of Nonprofit Organizations (TANO). Introduction. Introduction Class Survey

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financial contingency plans managing risk during difficult economic times

Financial Contingency Plans(Managing Risk During Difficult Economic Times)

YWCA Southwest/Delta Region

Regional Conference

January 31, 2009

Presented By Cheryl Black, TANO c 3 Accountant

Texas Association of Nonprofit Organizations (TANO)

introduction
Introduction
  • Introduction
  • Class Survey
  • Plan for the session
    • Participation
    • Questions
    • Breaks
    • Review agenda
agenda
Agenda
  • What is risk management?
  • How do nonprofits prepare for a financial contingency plan?
  • What items should be in your organizations plan?
  • Wrap up – Q&A
risk management
Risk Management
  • What is Risk Management?
    • A way of preventing losses
      • Income loss
      • Reputation loss
      • Services provided loss
    • We manage risk everyday
      • Baby gate at the top of stairs
      • Pets on a leash
      • Expiration dates on food containers
      • Flu shots at beginning of cold weather
risk management continued
Risk Management(continued)
  • For nonprofits risk management responsibility is distributed to different departments
    • Board of Directors
      • Strategic planning
      • Budgeting
      • Policy formation
    • Program
      • Staff orientation
      • In-service training
      • Case Management
    • Facility
      • Preventive maintenance
preparing your organization for a financial contingency plan
Preparing Your Organization for a Financial Contingency Plan
  • Analyze loss exposures
  • Examine which risk management techniques work best for your organization
  • Select one
  • Implement
  • Monitor and Evaluate
  • Change the culture of your organization
analyze loss exposures
Analyze Loss Exposures
  • Determine potential hazards or causes of loss
    • One area affected may ripple across the entire organization
  • Calculate the financial consequences
  • Prioritize levels of impact (high, medium, low)
    • Needed to accomplish exempt purpose?
    • Maintain revenue stream(s)?
    • Ensure ongoing operations?
examine which risk management techniques work best
Examine Which Risk Management Techniques Work Best
  • Avoidance
    • Don’t engage in particular activity
  • Control by –
    • Loss prevention – reduce frequency of loss
    • Loss reduction – reduce severity of loss
    • Segregation –
      • Separation – internal controls
      • Duplication – backups, cross training
        • Examples – on-call staff, redundancy in IT systems
examine which risk management techniques work best continued
Examine Which Risk Management Techniques Work Best(continued)
  • Retention
    • Accept the risk and pay for it
    • Expense within the annual budget
    • Dip into reserves
    • Borrow
  • Transfer both legal and financial responsibility
    • Insurance
select one
Select One
  • Be candid and transparent
  • Express divergent views and follow them through to understanding
  • “Through the process we achieved a much better understanding of our critical functions”
implement
Implement
  • Technical
    • Those who have technical expertise in that area
  • Managerial
    • Those who have the authority to:
      • Engage multiple departments
      • Cross-organizational coordination
monitor and evaluate
Monitor and Evaluate
  • Regular review (weekly, monthly, annually)
    • Detail people – generate data to correctly analyze risks
    • Big picture people – use intuitive sense of when decisions are right or wrong
change your organizational culture
Change your Organizational Culture
  • Establish objectives, strategies, roles and responsibilities
  • Decisions now will have consequences far later
  • What’s your organizational tolerance level?
  • Balance drive for mission fulfillment vs. need to operate with accountability
current ywca financial contingency plan
Current YWCA Financial Contingency Plan

“The Local Association has a contingency plan for maintaining solvency during financially challenging times.”

items to consider for your financial contingency plan
Items to Consider for YourFinancial Contingency Plan
  • Insurance
    • Directors & Officers (D&O) Insurance -(Board acting as the governing body)
    • Errors and Omissions -

(Staff working with HR and payroll)

  • Protect your data
    • Computer and electronic data processing
    • File cabinets
items to consider for your financial contingency plan continued
Items to Consider for YourFinancial Contingency Plan (continued)
  • Cash and Investments
    • Cash deposit risk
      • FDIC insured
      • Several different banks
    • Investment risk
      • Investment policy established
      • Investment spending policy in place
items to consider for your financial contingency plan continued1
Items to Consider for YourFinancial Contingency Plan (continued)
  • Cash Flow considerations –
    • Perform cash flow projections on a regular basis (weekly, monthly)
    • How many months of expenses can be covered by current cash?
    • Negotiate payables
items to consider for your financial contingency plan continued2
Items to Consider for YourFinancial Contingency Plan (continued)
  • Evaluate your current strategic plan
    • Is your strategic plan responsive to current economic conditions?
    • Will changes to the current year’s plan affect your long term goals?
  • Budget conservatively
    • Assume cash will arrive late
    • Assume bills need to be paid sooner
items to consider for your financial contingency plan continued3
Items to Consider for YourFinancial Contingency Plan (continued)
  • Revenue – review and optimize
    • Dependent on one source?
      • Consider way to diversify
      • Don’t over diversify (start up costs, fixed assets)
    • Review revenue changes
      • Investment losses
      • Government funding
        • Reimbursement rate could increase/decline
      • Foundations – multi-year grants
      • Individuals
        • Individual giving historically has not declined much during recessions
items to consider for your financial contingency plan continued4
Items to Consider for YourFinancial Contingency Plan (continued)
  • Programs – review and optimize
    • Establish priorities
    • What’s fundable?
    • Are deficit programs important to the mission?
    • What is the cost of each additional client served?
items to consider for your financial contingency plan continued5
Items to Consider for YourFinancial Contingency Plan (continued)
  • Maintain visibility
    • Avoid “fake it ‘til we make it”
    • Develop donor relationships
      • Donors don’t disappear, but become more cautious and compare
      • Can turn into endowment gifts (to sustain your organization the next time)
    • PR $$’s vs. advertising $$’s
      • Avoid “interrupt” methods (telemarketing, direct mail)
      • Pursue “permission” based methods (search engine optimization, blogging)
      • Maintain web presence
items to consider for your financial contingency plan continued6
Items to Consider for YourFinancial Contingency Plan (continued)
  • Maintain visibility (continued)
    • Remind stakeholders of the mission
      • Offer knowledge and information

(earn and retain trust – not sales hype)

    • What’s the competition doing?
      • If they are cutting marketing dollars, increase yours
items to consider for your financial contingency plan continued7
Items to Consider for YourFinancial Contingency Plan (continued)
  • Focus on the “big picture” – protecting your end users
    • “The goal of surviving a recession is not to stay afloat for the sake of staying in business, but rather to make sure you’re around to keep serving the public, particularly in times of increased demand for services”Clara Miller, Nonprofit Financial Fund
    • How are you going to respond to higher demand for services?
    • “Live to fight another day”
    • Work to build public policy underlying the causes your exist to address
items to consider for your financial contingency plan continued8
Items to Consider for YourFinancial Contingency Plan (continued)
  • Downsizing plan
    • Furloughs
    • Across the board salary reductions
    • Outsourcing to consultants
    • Partnering or merging with similar organizations
    • Share back office tasks
      • Some foundations are willing to invest in paying for shared services
references
References
  • Risk Management for Nonprofit Organizations by Kathryn M. Vanden Berk

Winter 2003, Alliance for Children and Families Magazine

  • Public Relations, Investor Relations, Marketing Professionals: Do More with Less in Tough Economic Times

http:www.guidestar.org/news/features/nmarketing_in_tough.jsp?source=jan09nwsltr

  • Nonprofit Risk Management Center

http://www.nonprofitrisk.org

  • How We Built Our Contingency Plan, by Charles R. Willis

Communications News, April, 1991

  • Tips for NPO’s Threatened by the Financial Crisis

PhilanTopic, September 22, 2008

  • Inside Philanthropy (a blog of Philanthropy Journal)
    • Nonprofits must gear for tough economy – September 29, 2008
    • Tough times create opportunity for nonprofits – August 11, 2008
    • Nonprofits can partner on back-office tasks – July 21, 2008
  • Navigating the Financial Crisis: A Nonprofit FAQ

www.nonprofitfinancefund.org

wrap up
Wrap Up
  • Q&A
  • Next Steps
financial contingency plans managing risk during difficult economic times1

Financial Contingency Plans(Managing Risk During Difficult Economic Times)

YWCA Southwest/Delta Region

Regional Conference

January 31, 2009

Presented By Cheryl Black, TANO c 3 Accountant

Texas Association of Nonprofit Organizations (TANO)

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