Introduction

3 steps to a more financially resilient future

3 steps to a more financially resilient future

It’s a new year with new opportunities for your not-for-profit to boost its financial resilience. Although COVID-19 continues to make forecasting difficult, your staff and your board’s finance committee can take steps to negotiate obstacles. Here are three.

  1. Managing reserves and cash flow

Financial reserves have taken a hit across all types of nonprofits, and for some organizations, fundraising has fallen far short of expectations, too. These factors make effective cash flow management essential to survival.

Staff should prepare cash and expense projections for the quarter, the month and possibly even the week. To avoid being caught off guard, your finance committee should review regular reports on funding sources, especially those that have dropped significantly or are in jeopardy of vanishing altogether.

  1. Calculating unrelated business income (UBI) separately

Proper compliance with UBI tax requirements is important if you’re to avoid issues later. Since passage of the Tax Cuts and Jobs Act (TCJA), nonprofits must calculate UBI separately for each unrelated business. Among other things, the regulations require nonprofits to identify each separate unrelated trade or business with the appropriate two-digit code in the North American Industry Classification System (NAICS).

If your organization has multiple unrelated trades or businesses, you must allocate deductions among them using a “reasonable basis” standard. Certain types of investments can be treated as single trades or businesses.

  1. Scenario planning and benchmarking

If it isn’t already a customary part of your process, your finance committee (and appropriate staff) should initiate scenario planning. This involves assembling budgets for multiple revenue situations your organization could face — typically, best case, worst case and somewhere in between. Ask how your non

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