Running a non profit isn’t exactly a walk in the park. It is definitely hard work, but a rewarding journey at the same time.
Sometimes, things also don’t go as planned and you may find your organization under financial distress. Suddenly you find yourself falling behind on due dates, vendors are chasing for payments, and your stress levels are skyrocketing.
Regardless of the nature of your non profit, you need sufficient cash flow to meet your financial obligations. And the closer you are to not being able to do this, the closer you get to insolvency.
In order to ensure that your situation doesn’t get worse and prevent your organization from going under, here are some early warning signs to look out for. These are signs that you need to deal with the situation as soon as possible.
Constant Shortage of Cash
In any type of industry, cash is king. So if your expenses are higher than your revenues, expect to experience some problems in the long run, unless it is well-funded by an endowment or other savings.
Don’t let your cash flow to constantly stay negative for extended periods, as it can imply that cash in the bank could be running low and may eventually lead to bankruptcy.
Falling Profit Margins
Most non profits aim to end the year at net-zero or at a slight gain so they can sock away cash for the next year.
If your organization is seeing sustained losses, it may be difficult to keep it running smoothly and may cause added pressure to your cash flows.
Delayed or Defaulting on Payments
If your organization has to constantly delay payments to its creditors, some suppliers may be forced to halt the supply, leading to delays in your production or service delivery.
Also, it is not unusual to forget or miss a payment. However, if it is becoming too frequent, this is a warning sign of insolvency.
Employee Turnover and Stress in Management
Organizations in financial distress have increasing employee turnover rates and/or reduction in headcount to cut down on costs. Also, significant changes in senior personnel and stress in management are key indicators that your organization may be in trouble.
Market Risks and Other External Factors
Economic downturns, changes in market trends, the loss of a major donor or key contracts, among other external factors may also put friction on your profitability. While these conditions are often inevitable and beyond your control, it is important to be aware of these risk factors and stay ahead of these changes and disruptions. By doing so, you will be able to effectively manage them and cushion their impact on your non profit- and the people you serve.
Is Your Organization At Risk?
If you find your organization is showing any or some of these early warning signs, it’s time to take action. The faster you act, the higher your chances of turning things around.
While nobody knows your non profit as well as you do, seeking expert financial advice right away is crucial for your survival in the face of insolvency. For a free initial assessment of your organization, feel free get in touch with us.
We will not only help you understand your current situation, but will also help you consider your options, implement concrete action plans, and minimize your exposure to further risk through practical strategies.