The world certainly feels topsy-turvy right now. Each day seems to bring new challenges to the economy…and new financial challenges for nonprofits. Your donations may be diminishing. Government funding may be declining. Membership may be falling. Sales may be receding. Any of these developments can challenge the financial stability of a nonprofit. Even organizations with healthy reserves are likely impacted by the turmoil in the financial markets, with investments taking a punch.

So how do you preserve the financial health of your nonprofit while trying to maintain your balance in the midst of economic turmoil? One important priority should be managing costs. When so much around us is unpredictable and uncontrollable, you do have some control over costs. Healthy cash flow is essential to ensure your nonprofit survives. While you will be doing whatever you can to ensure that cash is flowing into your organization, it’s also vital to contain the cash flowing out. Becoming lean and efficient can help your organization maintain its equilibrium; following are some cost-saving suggestions that can help you get there.

Begin with a clear, accurate picture of your organization’s financial situation

You need to know where you stand so can make informed decisions. This requires accurate, timely financial data. Up-to-date balance sheet, statement of operations and cash flows will help the management team understand where the organization stands. When you know where you are, you can anticipate where you are going. This means budgeting for expected revenues and expenditures for the coming 12 months. Ask department and program heads to provide estimates for revenues and costs that fall into their area of responsibility.

On the revenue side, include every source of income – from investments, to grants, to individual donors. It’s also important to note which funds are committed and for what period of time, and which funds may be estimates or are at risk of being cancelled. On the expense side, be sure to include even the smallest items, such as office supplies and general office and miscellaneous expenditures. Minimize potentially inaccurate guesses by verifying costs with suppliers where possible. For programs, estimate the percentage of costs allocated to each, including labour and overhead. When estimating staff salaries, be sure to include all benefits and payroll taxes.

Once you have a complete picture, compare your budget with last year’s and look for differences and trends. This will give you a sense of where costs may need to be adjusted. Keep in mind that even for organizations that are well funded, it is always a valuable exercise to review costs in order to identify inefficiencies and to determine whether each expense is contributing real value to your organization.

Review costs in light of your strategic plan and today’s economic realities

Begin with the end in mind and then consider what is essential to take your organization there. Prioritize and consider where you may be able to delay incurring certain expenditures until the economy stabilizes.

Review costs on a line-by-line basis. Determine whether each expense is contributing essential value to the organization, department or program. Start with the largest costs – this is often the salary line. Review job responsibilities and the time allocation of each. How can you keep the organization as flexible as possible and minimize commitments? Can you achieve similar or better results, for example, by reorganizing staff members? Can you reduce or eliminate overtime? Reduce some work weeks? Can you use more volunteers or temporary contract staff for upcoming projects?

Review discretionary spending. Can you renegotiate contracts or terms with key suppliers or lenders? Reduce or eliminate leases on equipment? Reduce space? Can you barter for certain goods and services? Share people, space or equipment with other organizations? Reduce professional development or minimize travel? Ask board members and volunteers for suggestions to minimize discretionary costs – someone inevitably knows someone who can help with something.

Ask department heads or team leaders to review their own budgets. Consult with the organization’s accountant as well; he or she may be able to identify opportunities that may not be obvious to you and your team. Meet with your bankers to discuss ways to reduce fees or improve returns. If you don’t have contingency financing in place such as a line of credit, this is also the time to consider this issue.

It’s important to keep a close watch on revenue and expenses. Hold program or department heads accountable for their budgets. Review your financial statements and budget every month and look for changes or trends so that you have timely information for fast decision making.

It’s also essential to know your organization’s cash position at all times. Prepare cash flow projections for the coming year. Include both best- and worst-case forecasts in order to evaluate “what if this should happen” scenarios. Compare these projections each month with your cash flow statements so you can flag and address discrepancies before they escalate into serious problems.

The cumulative effect of small cost savings can be impressive. But don’t do this in isolation. Your organization also has to focus on revenue. Involve your team in helping your nonprofit maintain its balance – challenge them to come up with creative, revenue-generating, cost-saving ideas. Once the economy regains its equilibrium, your organization can be more efficient and effective – ready to move forward with your vision.

Bob McMahon, CA, is a partner of BDO Dunwoody LLP. He provides auditing, accounting and advisory services to nonprofit, private and public organizations. You can reach Bob at (905) 270-7700 or bmcmahon@bdo.ca.