Financial Reforecasting by Brian Traquair, MAS VC

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finance accounting

 

Every organization, and every family for that matter, is trying to understand the financial impact of the pandemic. In such times, we need to adapt our approach so that we can prepare for an uncertain future.

We all want to protect and preserve our not-for-profits through this crisis. When so many things have changed all at once, and when the roadmap for opening up or returning to prior practice is continually changing, this becomes very difficult. 

The goal of this blog is to provide some advice on how to reforecast your financials.

The best tool for forecasting is Excel or an equivalent. And try to get it onto one page so that you and readers can “see it”. This helps a lot with comprehension. 

The first step is to simplify your task. Summarize your financials into no more than five to seven sources of revenue, and the same on expenses – no more than five to seven lines.  You will need your prior year financials in this format, by month and by quarter. And then add your actuals for Q1 of this year and beyond (depending on when you read this).

To do this simplification, you should group your revenues and expenses in such a way that whatever is in each bucket will move up or down in similar ways. And make sure that any major clients or services or donors that make up more than 10% of your revenue are separately identified.

For expenses, make sure you have one or more lines for staff expenses, as these will be vital to understand. You should also add a line for potential wage subsidies. Then cover rent and other major expense lines depending on your not-for-profit.

Once you have simplified, you need to write for each line the assumptions you have made and/or how you see this revenue or expense varying based on circumstances. 

Identify which items are stable and understood, and which ones are under stress and are likely to vary either as a result of the environment or as a result of decisions you need to take in response to circumstances.

The real key to reforecasting is scenarios. Particularly in times of great uncertainty, it is impossible to know for sure what revenues will come in when a not-for-profit can reopen services, what donations can be expected, what savings are possible, what government programs may help and what new expenses will materialize. It is therefore critical to make some assumptions of bad and good cases and evaluate the impact both individually and collectively. 

You cannot vary everything. Find the variables that are material to your organization, and focus your energy and analysis on learning what might happen, what you can do, and model those. Test the downside more than the upside. Do not be afraid to change the model as you learn how things interrelate or on receipt of new information.

Finally, communicate often and openly with management and stakeholders, including Board members. Do not wait for a final answer, but instead bring people with you as you examine risks and potential impacts. Your organization will learn faster and be able to react better as a team.

Long-term sustainable growth was everyone’s mantra; now our focus is on surviving to be there next month and next year. With a good forecasting process, you will have a lamp to light the way. 

MAS volunteer consultants are still working with our clients to provide support (via telephone or video calls). We can help.

Would you like to know more about MAS? Access: https://masadvise.org/services/finance-accounting/ 

About Brian Traquair

Brian has been a volunteer consultant for MAS for 3 years, after a career as an executive in the software industry. Brian does strategy, finance and technology assignments for MAS leveraging his business background as well as two decades of volunteer work with not-for-profits.

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