Nobody knows what the future will bring. If anything, the current pandemic has made that very clear. Things that seemed impossible before, are possible now and vice versa. It may not be something you could have planned for, as a small nonprofit working on other topics. But you may have used this experience to think of contingency plans for unplanned events that might be a little less unlikely than a pandemic. If you have not done so yet, make sure you do! I certainly recommend making a contingency plan for fundraising setbacks.
Delays lead to increased risks
I help a small nonprofit that almost fully depends on local government funding. Due to COVID-19, the municipality has had to postpone the already announced tender procedure for funding for the coming years. The new timeline is yet to be finalized but it looks as if the results will be known in November. For subsidies starting from January. Current funding ends by 31 December. With a heavy dependence on this source, this timeline does not allow for sufficient time to implement plan B or to close down properly if needed, after the decision is communicated in November.
This means that the organization needs to prepare a contingency plan and start implementing it before November, so as to be able to handle a negative decision properly. Obviously, this means that it may prepare for something that may not come to pass. After all, it is very much expected that the local government will continue to support the work of this organization. However, because this is not 100% certain (and we certainly cannot look inside the municipal wallet to see how COVID-19 has ruined its budget plans for 2021 and beyond) and because the impact of a negative decision is so huge, the nonprofit must prepare for the worst case scenario.
Define the risk …
Key in drafting a contingency plan is clarity on the risk that needs planning for. In this case, the risk is not so much that a grant is not awarded. The risk lies in the timing of the decision: there will not be sufficient time left to terminate all contracts and obligations within the current grant period after a negative decision becomes known. This means that costs will be incurred after the current funding ends, at a moment when no significant other funding is available to cover these costs. This is a risk because the nonprofit has extremely limited reserves to cover unfunded expenses.
…and go deeper
So the risk in this case is in fact caused by the lack of own reserves and the lack of diversity in funding sources. If there would be a generous reserve, a negative decision with costs extending beyond the current funding period would not be such an issue. If there would be a more balanced mix of funders, one funder’s discontinuation might not have forced closure as a result.
What to do
If you want to dig deeper, you could say that this risk appears now because no risk management and contingency planning was done before. However, there is not enough time in this moment to address that gap thoroughly.
What can be done in this moment if you are in a situation like this is to:
- Maximize the chance for success in the tender by gathering as much as possible intelligence about the funder’s preferences, priorities, etc. formally and informally and if applicable teaming up with others for a stronger proposal. Free up most resources to work on this, hire external help if needed.
- Cultivate relations with the funder to see what they can do in case of a negative decision. Can they support a transition period? Is there any precedent for that? Does the funder have rules about this? Any support for a transition period would alleviate current stress levels. And might give more time to implement plan B.
- Develop a strategy for diversification of funding sources for the short term and the long term. Develop an action plan for the short-term strategy and start implementing it. Free up remaining resources for this part of the work.
- Develop a plan for closure so that steps can be taken as and when needed. This should typically be done by the management, but I would recommend finding external expert help for this, as the other key tasks also depend heavily on management.
- Communicate carefully with maximum transparency about all of this internally, as well as with the funder and with potential funders, in a non-panicky manner, showing maturity, responsibility and integrity. Keep in mind that maximum transparency might not be full transparency, depending on your (legal) context. Integrity and responsibility are key. Make sure no one can rightly feel lied to.
As soon as the proposal is submitted and the first task of the above list is fulfilled, the focus must shift to developing a proper contingency plan. A plan that does not only look at the already defined risk but identifies and addresses also other risks for the short and longer term. A plan that will make sure the organization does not end up in a situation as described again.
I recommend involving outsiders in risk identification and contingency planning. People on your board, if the board is not involved in the day-to-day work of the nonprofit. Warm contacts at funders. People from the (local) government. People from the community you serve. But also, people from the private sector, even if they have no direct link with your work. Outsiders may ask questions that can be extremely helpful in finding the answers you need, precisely because they are not familiar with your operations, organization, team or sector.
Opportunity to be stronger
As they say, if it does not kill you it makes you stronger. That is certainly the case here. If you go through these steps and develop a solid contingency plan for your nonprofit, and review this regularly, you will undoubtedly come out of this stronger.
Even if your plan comes late, and you cannot avoid closure now, you can get out of this stronger. You will bring this to any next initiative you will join or create. So even if the worst-case scenario comes to pass, make sure that you take time to learn from this so that you and others can benefit from that experience later on.
Let me know
Surely this example is not an isolated case of a nonprofit facing a risk they did not plan for properly and that materializes now indirectly as a result of COVID-19. Are you having a similar experience? What did you do? What is your lesson learned? Do you have questions about this for me or for your peers? Please let me know, I am eager to hear from you!