Financial and funding considerations for not-for-profits during the COVID-19 crisis

April 14, 2020

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The coronavirus pandemic has turned the finances of not-for-profit organizations across Canada and around the world upside down.

Many organizations have cancelled or postponed fundraising events. Some are considering shutting their doors. Others are looking at their financial bottom line and confronting the difficult decision of whether to lay off or furlong staff. While the global health crisis has made everything uncertain, one clear thing is that many not-for-profits will struggle to weather the storm. To help you determine a prudent path forward, we’ve outlined the key financial and funding considerations that should be top of mind for not-for-profits. Keep reading to learn more.

Figure out where you stand

Getting clarity on your financial and operational health is the first step to addressing a shortfall. Begin by evaluating what revenue sources you were expecting to receive in the current year, from what sources and evaluate the funds you can recover.

That may mean looking at events that could potentially be rescheduled rather than cancelled to help recoup some of your loss. Is it possible to host auctions and AGMs digitally? Can you think of ways to retool other events so people can join remotely? Focus on critical operations, such as employees, payroll, and capital structure, so you can use the lessons learned in the short-term to inform your business continuity plans for the long-term.

Understand your cash flow

With continuing costs and deficits in your funding, donations and sponsorships, understanding your cash flow is critical. The focus will be less purchase and ledger, and more about your balance sheet. How long is your runway? Can you support your operation for the next six months? What cost-saving measures can you implement?

If you have any GST returns that you are expecting a refund from, get them filed as quickly as you can. Take advantage of any government assistance, funding or extensions on any payables and review all contracts and non-discretionary costs. If there's no need to pay now, defer. And search for any crisis-related exit clauses in your agreements so you can claw back some extra cash.

At the very least, be sure you are able to monitor the urgency of your situation and make informed decisions about how to continue.

Find financial relief

On April 21, 2020, the federal government announced a $350 million stabilization fund to bolster the shortfall of Canada’s not-for-profit and charities sector. The money, which will help 86,000 registered charities and some independent organizations impacted by the global pandemic, is in addition to the programs listed below:

The Canada Emergency Wage Subsidy

Not-for-profit organizations whose revenue has decreased by at least 30% can benefit from a government top-up of up to 75% of wages. When calculating, you can choose to either include or exclude revenue from the government, whichever is more advantageous.

The Canada Emergency Business Account

Interest-free loans of up to $40,000 can be arranged through your regular financial institution. 25% of the loan will be forgiven if the loan is repaid by December 31, 2022.

Deferral of T1044 filing

Information returns otherwise due between March 18 and May 31, 2020, can be filed on June 1.

Deferral of GST/HST remittances

GST/HST collected for specific periods (depending on whether the organization remits monthly, quarterly, or annually) will not have to be paid until June 30, 2020. 

A loan isn’t always the answer

Applying for a loan or a line of credit can sometimes make a bad situation worse. It's far more prudent to have a better view of your long-term business continuity plan, post-COVID, so it feels like the not-for-profit can recover. While debt isn't a bad thing, because it buys time, it's about making your best-case judgments on how well you can service that debt. In any case, you’ll need to avoid getting the directors involved in any personal guarantees because that could put them and your not-for-profit at risk.

Fundraise with caution

Fundraising now will feel like falling on deaf ears because people are trying to recover and sustain. Reassess the timing of your solicitations, and work on strategies that realign your market to the right demographic for whatever their cause is. Unless your not-for-profit is a healthcare organization or on the frontline of the pandemic, we advise that you tread with caution when making any direct asks. It may be that waiting a few weeks or until we get over the top of the curve might be a better return on your investment.

An online presence is valuable through the crisis by thanking the front-line workers or an empathetic message to the public. This allows you to be front of mind without asking for funds now. When you do request funds, you will be viewed in a more positive light.

Act Now

Now is the time to put in place a business continuity plan that will allow your not-for-profit to function at the highest degree of efficiency and effectiveness even during a global pandemic. Contingency planning should be the golden thread that weaves throughout the strategic management and operation of your not-for-profit organization. Make informed decisions now that are not just supporting a short-term situation but can sustain your post COVID-19 operations.

How BDO can help

Let BDO help you adjust to today's reality, and navigate the financial challenges facing not-for-profits during COVID-19.

Kelly Hagen, Partner, National Not-for-Profit Leader

Clark Lonergan, Partner

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