Responding to Financial Impact Amid Hyper-Change with Michael Gellman part I

This transcript has been lightly edited for readability and to correct obvious transcription errors while preserving the meaning of the original conversation.

Episode 67 — Responding to Financial Impact Amid Hyper-Change with Michael Gellman
Clean Speaker-Labeled Transcript
Guest: Michael Gellman
Automated QA: Passed

00:00.108 Brandon Burton
Hey there, just real quick before we get into this episode, this is Brandon, and I just wanted to share a quick message. If you are listening to this, chances are good that you are a chamber professional. And guaranteed, if you're listening to this, you also listen to podcasts. Have you considered creating a podcast for your chamber and all the benefits that that can bring? Check out my free chamber podcasting guide at chamberchatpodcast.com/slash podcasting. to learn how you can get started with your own chamber podcast. This is the Chamber Chat Podcast, the show dedicated to chamber professionals to spark ideas and to get actionable tips and strategies to better serve your members and community.
00:44.494 Michael Gellman
And now your host, he has fun thinking about new business ideas. He's my dad, Brandon Burton.
00:55.246 Brandon Burton
Welcome to Chamber Chat Podcast. This is Brandon Burton, and it is my goal to help introduce you to people and ideas so you can better serve your chamber members and your community. And you're joining us today for episode number 67. And today I have one of those people on the podcast as a guest that will help introduce some of these ideas that will allow you to continue to serve your community in in better ways. And our guest today is Michael Gelman. Michael has a passion for serving nonprofit organizations, and he helps develop a strong financial base for these organizations. He's the founder of Fiscal Strategies for Nonprofits and Sustainability Education for Nonprofits. He regularly teaches adjunct classes in nonprofit management for Georgetown University and conducts numerous seminars. on budgeting, fiscal and financial sustainability, effective financial messaging, and strategic planning for exempt organizations for national and local nonprofit organizations, including the U.S. Chamber of Commerce Institute for Organizational Management. Our discussion today with Michael, we're actually going to be breaking this up into two episodes because he's got some great stuff to discuss with chambers throughout the country and really s maybe some preparatory work and some follow-up on it. But our our topic of discussion is going to be on responding to financial impact amid hyper change. And we will get into this discussion with Michael as soon as we get back from hearing from our sponsor.
02:45.326 Brandon Burton
During this time of uncertainty, most chambers are looking for ways to replace funding from events and programs that either been canceled or postponed due to social distancing that does not allow for us to meet as large groups. Another topic that is top of mind for chambers is how to help their member businesses recover from the financial impact their businesses experienced. With these considerations in mind, I want to introduce you to Swipe It. Swipe It offers a credit card processing affinity program for Chambers of Commerce that can help answer your questions about how to replace some of your lost revenue while also allowing for you to serve as an advocate to your member businesses by introducing them to a resource that can save them money on their credit card processing fees so they can become more profitable. Swipe It has been a supporter of Chamber Chat Podcasts from the beginning. And they are the best in the credit card processing business. Visit ChamberTappodcast.com slash CC, which stands for credit card, to learn how you can get swiping with Swipe It. Okay, Mike. We are back. If you would please take a moment to tell us a little bit about your background, and maybe a little more detailed than what I shared, and maybe share something interesting about yourself so we can all get to know you a little bit better.
04:13.522 Michael Gellman
Thank you, Brandon. and really looking forward to joining the discussion here today. And it is a discussion. as I like to always say to myself, I am a CPA. I've spent most of my career in public accounting up until a few years ago. But I started out my career and I've only worked with nonprofits. And I always like to say I come from your side of the table and that I started out working with nonprofits as an intern back when I was in college. I caught the bug and I f I think of myself first and foremost as a project manager that comes at it from the financial side. been in public accounting but never been that traditional auditor tax preparer. I do work in and around the nine nineties as a messaging tool. And some of you might have been in my classes. I talk about, you know, telling the good story through the nine ninety. But think of myself as a CFO, sitting between a CFO and a CSO, a chief financial officer and a chief strategy officer. looking at you know through the lens of financial fiscal impact on on organizations in and around short and intermediate planning, C-suite, mission delivery, and the key key one sustainability, although this definition on sustainability has really changed recently. Get to work with nonprofits all domestically, both with NGOs outside the US. About two and a half years ago, set up fiscal strategies for nonprofits. Got out of the public accounting world just because it was a very successful but really crazy time and wanted to be able to s you know concentrate on the fiscal financial side and not into the accounting systems and and such. And that's where we st started fiscal strategies for nonprofits and we focus in and around the subjects I just talked about. And Brandon will give you a link to that website. More recently we started a an or a a web platform that's called sustainability education for nonprofits. And a lot of the information we're going to discuss here today, I encourage you to go to that website. You'll be able to see free articles, tools, resources, Q and A's, weekly thoughts. And we're posting to that multiple times during the week. and that'll be a an excellent free resource for you.
06:27.542 Michael Gellman
And then around the legal, fiscal, financial, and governance aspects for nonprofit organizations. I spend I split my time between working with different boards and nonprofit organizations and teaching. And as Brandon said, I I teach over at Georgetown University, and of course in the chamber world, I teach in the IOM Institute. And I'm doing a lot of different classes in for ASAE and the CAE program and different organizations like. the National Urban League, Volunteers of America and and such.
07:02.016 Brandon Burton
Right. Great background. I'm gonna go ahead and put your the address for the sustainability education for nonprofits now. So if people want to go check that out, it's S E and then the number four, nonprofits.com. And we'll have another mention to that later on in the in the episode here. But our our topic, as I mentioned and kind of the introduction, is that we're gonna be talking to how we can respond. To the financial impact specifically for your organization amid the hyperchange that we're seeing right now in our environment. And Mike has a great demonstration or maybe a tutorial, if you will, about how to really assess how you know what the strength of your financial outlook looks like at your organization, and to be able to kind of work through a framework that will help. To to keep you sustainable going into the future. So some of these objectives that we'll go over throughout our discussion, and and like I mentioned, this will be a two-part podcast episode. But some of these objectives is we'll talk about how hyperchange impacts planning and decision making. We'll talk about whether or not your organization is well positioned, financially healthy, and strategically ready for a sustained period of stress and uncertainty. We'll also talk about how hyperchange impacts your funding sources and programming and services that you offer. We'll talk about the strategies for organizations who are financially strong versus organizations that are financially weak, and talk about how to effectively communicate with your board and the important actions that will affect the financial health and continuity of your organization. So with that kind of outlook and those objectives, that's kind of what you can expect to get out of this discussion that we that we have with Mike. And so Mike, I know you have this this broken up into kind of a five phase action plan. Do you wanna maybe hit on what those five points are and then we can kind of start working our way through them?
09:25.974 Michael Gellman
Sure, Brendan. And the five points are finding a starting point. And I do want to reserve a few minutes to talk about that starting point. There's a couple of things I think we can impart for everybody that will be really helpful. The second part of it, which will take up the bulk of the time we're going to talk about here on this podcast, is the three key critical factors to consider and plan around. And I want to be able to talk about the three critical factors, break them down, how they relate, and how they will help you in your thinking process and and the keyword there will be back to this framework. Brandon, I think it's not too early to state that there will be a framework template we'll be referring to. And then the second part of the podcast, the second series number sixty-eight, we will actually spend part of that time walking you through the framework document.
10:15.916 Brandon Burton
That's right. And that that framework document will have access to it on our show notes page at chamberchatpodcast.com slash episode sixty seven. So you can download that and kind of go through what Mike walks us through and to be able to be prepared for episode sixty eight, which will come out next week. But go ahead and and take us through the other the other points of yeah. Yeah.
10:38.744 Michael Gellman
Point number three will be the timing and implementation. And there's a couple really interesting things I think will help you in your thinking process of feedback on this part. Number three has been really good across the country. Number four, we're going to take a quick look at operating reserves, because that's the one of the best indicators of financial health and gives us what the critical benchmark we need to be able to communicate, assess, and watch over oversight. And then the final piece, number five, will be going through a framework. Because we're a very disruptive time. I think it gives great comfort to people just know that there's a framework out there to follow, you know, a path. But framework is, you know, a thoughtful path, but it also implies that we will be constantly adjusting the framework and and such. And it's in the form of a one page dashboard, which I think really helps. I'm a big believer in short dashboards to communicate financial information. And that's there for your use and I use it myself all the time.
11:40.65 Brandon Burton
All right. So that that gives a good outlook as to or a good framework if you if we want to keep using that word of of what to expect throughout these these two episodes here. So let's let's go back to number one in this five phase action plan, finding a starting point. So what does that mean and and just expand on that?
11:58.85 Michael Gellman
Yeah, I think you know, I just want to spend a couple of minutes here on this. It's if you step back and look at this disruptive time and then there are parallels, you know, back we're gonna talk a little bit about, you know, the disruption that happened around nine eleven. We're gonna talk a little bit about the disruption that happened coming out of the banking crisis crisis in two thousand eight, nine and such, but each one has differences. It just gets overwhelming when you try to bring in all the elements of that. so finding a starting point, I feel there's a comfort zone. I am a CPA, I'm a finance person, but I want to tell you that the starting point here is that we need to overweight all management decisions. I'm gonna say this slow. Overweight favor all management decisions through a lens of how it impacts financial health, your financial position, your financial capabilities of the organization. And the reason I say that. And I was immensely changed by nine eleven and the banking crisis. And the one place that we got things wrong because was is that how deep and how long those crises were. And organizations that had financial resources look back and they said they probably burned through more of those than they should before they started pulling back because they didn't understand how long we couldn't anticipate how long and how how the recovery and how was going to change their operations. So they relied a little bit too much, in some cases a lot too much, on their operating reserves. And we're going to talk about this concept of weak financial weakness versus financial strength. And it's burned through those reserves. And the organizations were in a financially weak position that don't have reserves didn't pivot quickly enough to be able to right size the organization because there's an underlying concept, Brandon, through all these things that we assume that we want the organization to be able to come out the other side. And I'm not going to necessarily always be stronger because that would be naive, but to come out in a position to continue on, you know, nonprofit organizations, there's this dilemma we have up front on the starting point, is that the demand always exceeds what the capability of a nonprofit can do. And if you think about it globally, there's some of the issues we deal with, there's not enough money on the planet to handle. And so I come back to this thing. In order to help the most people have the most of impact.
14:22.936 Michael Gellman
Whatever your mission is, is to ensure that the organization will be around for as long a time as possible. And so I always say to volunteers, interns, staff, managers, C-suite, board members, even constituents, that the one thing we can all do is we can help make an organization a little bit financially stronger later on than when we got there. Leave that organization two, three, four years later in a better financial position. It's gonna be really hard during this eruptive period, but we don't wanna wreak havoc on an organization by bleeding through all the financial assets that have and organizations are weak, getting into a point where they're so far underwater that they might not be able to recover. So under this, there's just three points to make that one, we're in a very highly uncertain period. Two, we're gonna overprotect our financial position right now till we can start to see where recovery is and where we're going. And so that leads us to as we make these important decisions that we want to heavily weight towards that financial impact of those decisions. Do we move a program from, you know, an in-person program to online? Do we cancel something? Do we, you know, and we're gonna talk about that. So that's the concept. And you know, what we don't control, well, I'm gonna talk about controllable and uncontrollable in a little bit, is we don't un we don't understand as we can see just over the last three, four weeks, the pace of change that is happening related to COVID nineteen. Okay. The scope of the change and the impact. You know, there's the the medical side and then there's the economic side. And I am really I want and hope and pray we get through the medical side of this as quick as we can. The economic side of this, that fallout's gonna be here for a a while. And so based on that the impact of that change.
16:13.55 Brandon Burton
Well, and talk about the uncertainty. I know we've we've spoken a couple of times leading up to this interview, and it seems like every time we talk, something has changed, amid the the COVID nineteen pandemic. So it is a a time of change, it's a time of uncertainty, and it's a time where we need to be nimble and be able to pivot to be able to continue on and to be there once all this kind of passes over and to to not burn through. those reserves too quickly and and you know everything else that you're talking about. So let's let's get in maybe a little more detail on these the three factors, the those three keys to consider and plan around.
16:55.79 Michael Gellman
Thank you, Brenda. And you'll see these on the framework template. And the order of these is important. I'm going to state the first the three factors, and then I'm going to go back and we'll spend a few minutes exploring each one. We will cycle back to this in the second episode and explore them in more detail as we walk through the framework. Okay, step number one, and the order is very important, we'll be going through a financial health assessment. Is your organization in a financially strong position or what I like to think of it as a financially weak position? We'll talk about the strengths and weaknesses and and and what that is. the one concept I do want to talk about before I leave to the second step is that you know fn organizations that are in a stronger position have a whole different set of options and tactics that they can pursue versus an organization that's in that financially weak position, struggling to pay bills, struggling to get from pay period to pay period. Okay. Step number two, and I really believe in this step is very important to have a unique way to look at it, is looking at the vulnerability of your funding sources, the cash inflows, how funds flow into your organization, and how the coronavirus has impacted that. And then step three is a different volatility factor, and that's looking at demand volatility pressure. And what I mean by demand volatility pressure is that there's increasing and decreasing, and usually both are happening. And organizations on demands for services, demands for services to recipients, programs, memberships, events, and such. And they can be going in different directions. I've seen many organizations where events are being canceled in the short term, left and right. Meanwhile, their constituents are asking for more services in other areas, and then how they're gonna pivot to you know, and how they're gonna pivot. From basically in person events to online events and how that affects demand and the pricing and such. So to repeat the three steps. Step one is doing a financial health assessment. Step two is doing an assessment on your vulnerability or funding sources. And step three is to look step back and look how demands are going up and down in various areas. And that can be for grants too.
19:15.106 Brandon Burton
That's right. And I just it's interesting how you're touching on all these things. I just recently had Sherri Ann Kelly on the podcast from ACCE and she talked a lot about the the programming and things that the chambers have. And as you look at your calendar for the year, she had mentioned that you probably don't want to just move forward with exactly how your calendar was set up, just in a virtual sense rather than in person. So depending on the needs of your community and the feedback that you're getting. You may need to alter what those events and services are that you have to offer. Just I think is kind of to your point, as you look at the vulnerability and kind of the volatility on these events and programmings and services. What do you need to look at? What can continue on? What just needs to shift in the delivery? And what needs a complete pivot altogether? So this this framework worksheet that that Mike keeps alluding to is is very valuable to be able to look at and have this real overview. yeah, I see it as the kind of the thirty thousand foot you know view to look down and see the health of your organization, the financial health, to see these three steps and kind of take you through a very methodical way to to plan and move forward.
20:32.524 Michael Gellman
So, Brendan, if I we have time, I would like to spend just a two minutes to a give a little bit of the the metrics under and the thought process under those three sections. And then we can pivot ourselves to episode number sixty-eight. Okay. So step number one on the financial health, quick the purpose here, and you know this is always on my top ten list for nonprofit organizations. I wish they'd pay attention to.
20:48.482 Brandon Burton
That's right.
21:01.408 Michael Gellman
Is the financial health of a nonprofit only shows up on the balance sheet, nowhere else, and not on the budget and income statements. Yep, nonprofits have tunnel vision on their budget reports and which they should and how that's doing. And budgeting going forward is going to take up change, and we'll talk about that in a little bit in the next episode. so pivoting back to the the balance sheet, we in that step one on the framework, we take you to a quick and out, take a quick look at, and you can see that. If your balance sheet's in a strong position or a weak position. And the poster child for that is if you have operating reserves. Strong financial organizations that have built up operating reserves over many years, that puts them in a different position to how to plan and maybe how to put some of those reserves for use. We're going to talk a little bit more about that in episode 68. the weak organizations that are in a weak position, they have cash flow issues, counts payable have been growing. they, you know, they live from pay period to pay period, or they might have some cash, but down in their net assets section, restricted funds way out exceed unrestricted or without restricted funds and such. And that's what we think we call those actually what I like to call them underwater organizations because they're relying you know, they're s you know, you're not supposed to be using restricted funds until you expend them on programs. And if your unrestricted funds are in negative territory. you know, by default you're there. So those organizations are financially weak, they got to move very quickly to you know, cost containments and strategies that organizations that have some funds they least have the choice of how to maybe use some of those funds during an uncertain time. And we'll talk about that a little bit more. the second one is an interesting concept and you'll visually see this with the framework worksheet when we pull it up in the sep second episode. Is looking at
22:29.206 Brandon Burton
Yeah.
22:56.01 Michael Gellman
your the vulnerability your funding sources. And let me tell you what I don't want you to do. I don't want you to stand up in front of your board and say, well we think overall we're going to be okay. Funding's going to be down 20%, but we'll be okay. And it looks like it's just a random guess how things are going to you know, and you and it's a poor message. So what the there's one concept under the vulnerability and it's c I call it retention sensitivity. And we take a look and we take a look at our funding sources and we put them into one of three buckets. Bucket number one, you can change whatever you want to call it, but I like to call it the rock solid. Those are funding sources that might not be impacted too much by COVID-19. They might be if you're a membership organization and you renew membership on a 1231 year, well, they might your memberships might already be in. If you're a June 30 membership year and your memberships are getting ready to start a new renewal cycle, I could be hugely at risk right now. So the timing. So some organizations, the membership could be in the rock solid. That would be bucket number one. Bucket number two or vulnerable. Okay. And then bucket number three is shaky. So we've got rock solid, vulnerable, shaky. You'll see on the worksheet, you know, I I put 80 to 100% in rock solid that were pretty set on those. I put the 50 to 80 percent in the in the vulnerable section. Maybe a membership shows up there. And then shaky would be zero to fifty percent. So an event that was supposed to to happen on April 12th has been canceled. Maybe you haven't even been able to pivot that to do that online. And that could be in that zero to 50% where that the the the sponsorships and revenue sources, the registrations for that event might be turned off. Okay. And so just to repeat one more time real quick it's a sensitivity assessment on the vulnerability income. And we're we're we're putting that in what I call trifecation into three buckets. Rock solid vulnerable and shaky.
24:53.694 Brandon Burton
And like you had alluded to, when you go to the board and say, It looks like we're gonna be down twenty percent this year, if you can take this to them and say, Here's what our rock solid funding sources are, vulnerable, shaky, this is why we're gonna be down twenty percent, it's gonna give your board a whole lot more confidence in that you know what you're talking about as you're presenting this to them.
25:15.872 Michael Gellman
Exact confidence and it adds that in something that's sort of an impossible situation, we're being thoughtful and we have a framework. So and that and it adds a sense of calmness. And then Brandon, very briefly, the third bucket, and not that they're least important, but I do say this for the third analysis is demand pressure sensitivity. You know, what is it going what are the volume changes? You know, and there are to be volume changes. And for some organizations I've seen already, they're having increases in volume. And there's others You know, we're having decreases. We sort of concentrate on the top four or five at the organization. Obviously, you'll be looking at everything, but on the framework, we don't want to over get down to minutia with the board. And there's one more new concept under this demand. and I use this with about this demand sensitivity. I use this with about half of my organizations. It's a concept of controllable and uncontrollable. I think it helps boards to see things through your own eyes. There's certain things we're reacting to that we do not control. An event is canceled for April 12th. There's nothing we can do about that. And we don't even have time to pivot that event to online. But a a similar event that's supposed to be happening on June 12th, I would put in the control bolt because there we have a chance to pivot, change it, delay it, defer it, whatever we want to do, cancel it, you know, and such. But an event happening on April 12th, the decision was made for us. It's been canceled. venue, we can't get people together.
26:44.706 Brandon Burton
What kind of time frame would you look at when you're trying to determine what's controllable and uncontrollable? Because I think, you know, a month ago, an event on April twelfth may have seemed very controllable and then all of a sudden disaster happens and it becomes uncontrollable.
27:02.114 Michael Gellman
Yeah, that's a good point, Brandon, that you're bringing up. I don't think of it more as a time period. I think of it as helping boards and outsiders see that we've gone through this thoughtful process and we've moved activities, events, and important decisions into a controllable versus uncontrollable. Okay. And the ones that are in the uncontrollable, we have to pivot and move really fast. So controllable ones, we need thought processes, how we're going to do it, you know, and such.
27:29.985 Brandon Burton
Okay, makes sense.
27:31.896 Michael Gellman
So that brings us to the the first two segments that we wanted to cover, which is finding a starting point, favoring you know, all these important decisions we're making, how they how we how they impact financial position. And then point number two, which is the three key factors, in and so assessing financial strength, assessing the vulnerability of funding sources, and assessing changes in demand.
27:58.924 Brandon Burton
That is perfect. So this is a a good breaking point where we will take a break and resume on our next episode. But in the in between, as you wrap up this episode, I want to encourage everyone listening to please go to the show notes page, again, chamberchatpodcast.com slash episode sixty-seven. And nice and bold on that show notes page, we'll have a link to this financial health assessment framework worksheet. it would serve you well, serve your chamber well for you to go and print this out and do a little bit of homework before you come back for episode sixty eight. So as as Mike takes us through these remaining steps, that you'll be able to see you'll have this assessment and be able to have this kind of snapshot of your your financial health, how strong or weak you are, and then what you can do from there with that. So we'll We'll hit pause from here and look forward to picking up this discussion with you all again next week. If you are a Chamber professional, please subscribe to Chamber Chat Podcast in Apple Podcasts, Google Podcasts, or Spotify. When you subscribe to Chamber Chat Podcast, new episodes will show up in your podcast app each week as they are released. If you're finding value in this podcast, please leave us a rating and a review in iTunes. But most importantly, please share Chamber Chat Podcast with your colleagues that are in the industry.