Nonprofit recovery from the COVID-related downturn: The power of integrating finance and operations planning
Since the beginning of the economic shutdown due to COVID-19, 50% of all companies have experienced a decrease in revenue. The drop in demand has left many industries like hospitality, travel, and retail in shambles, and the nonprofit sector is no different. Nonprofit organizations have managed to get back on their feet, but now they must begin the daunting path toward recovery.
Organizations should focus on building resilience — the ability to quickly and inexpensively react to business, industry, or financial change without major disruption. Doing so will help them fortify their operations and prepare for future economic volatility. Nonprofits should also keep in mind that resilience shouldn’t be their sole focus; agility and adaptability are also crucial for responding to changing business landscapes.
The Three Phases of Business Resilience
Aberdeen proposes that there are three main phases of building business resilience:
- Survive – The companies that have been hit the hardest by the economic downturn are doing whatever is necessary to keep the lights on and simply stay alive as a business. These companies are experiencing a significant decrease in revenue with notable staff and cost reductions, or even a massive loss of business that is threatening their existence.
- Recover – Businesses in this phase are responding to financial changes with systems they already have in place and/or incorporating new strategies to address surprises. This is the stage at which companies can begin to leverage their resilience to fix and repair what broke in the initial loss of business.
- Thrive – Companies in the thrive phase are preparing for growth and opportunity. These organizations were already prepared for a decrease in demand or were in sectors that have prospered during the shutdown (i.e., consumer goods, ecommerce, healthcare). They are currently adding pieces that will move their business forward and further adapt to the new business environment beyond resilience.
When we took the pulse of the market in July 2020, we determined that the majority of all businesses are in the recover phase with equivalent populations in the survive and thrive phases. This distribution holds true for nonprofit organizations, 48% of which are experiencing a loss of business (Figure 1).
In the chart above, the group of “nonprofit organizations” does not include educational or governmental entities. These nonprofits are faring better than educational institutions, more than 68% of which are experiencing a loss of business, and slightly worse than government agencies, only 38% of which are experiencing a loss of business.
The recovery process is where many nonprofit organizations find themselves today. To determine the best course of action through recovery, they should first evaluate their finances and adjust operational processes to stay on budget. A unified strategy that connects the financial plan with the operations plan provides a holistic view of the financial impact and the best strategic path forward.
Uniting Finance and Operations
Uniting these two processes is more important than ever during this time of economic volatility, because decisions and performance related to operations should be based on financial data. Leaders have acknowledged this fact and have begun to integrate their budgeting processes with their planning processes (Figure 2).
Concurrently adjusting the integrated business plan and the financial plan allows organizations to build a strong base for future success. As organizations grow and take advantage of new opportunities, a harmonious relationship between operations and finance provides order and control as well as full visibility into the financial state of the organization.
Nonprofits can go further beyond integration and develop innovative tools that set them up for success. Artificial intelligence aids in performing “what if” scenarios and change analysis. Predictive and prescriptive analytics, fueled by AI, will also help organizations assess these scenarios and prepare to meet financial expectations. Incorporating these analytical capabilities opens the door for complex modeling and tactful, data-driven decisions.
Integration Promotes Adaptability
Nonprofits need to do more than just withstand economic downturns in the future; they need to take changes in stride and play to their strengths. In the wake of the COVID-19 pandemic, 98% of nonprofit organizations plan to take advantage of future opportunities. Opportunities such as greater workforce flexibility, new products / innovative new services, and increased market share are only attainable if organizations adapt to the changing business landscape.
Integrating planning for finance and operations allows organizations to assess their financial situation and simultaneously modify operational plans to reflect budgetary adjustments. This helps nonprofits optimize their donation allocation and reduce unnecessary costs. With greater visibility into the state of the organization and greater agility for updating finance and operations plans, nonprofits are better equipped to respond to business changes.
As all organizations enter a post-COVID world, nonprofits need to be ready for anything. They are essential for uplifting communities and providing support for disadvantaged groups. Comprehensive enterprise systems that incorporate data from both finance and operations help nonprofits get a handle on their internal functions so they can focus on serving their clients and succeeding in their missions.