As the COVID-19 pandemic continues to wreak havoc with the United States economy, some organizations are beginning to dig in for the long haul. While everyone wishes we could get back to business as soon as possible (and there are some indications this is what will occur), it may be many months before that happens. Increased expense control is becoming the watchword for many NFP organizations as donations and other sources of revenue dwindle. In some cases, stringent cost controls will be a matter of survival. Sadly, many employees may be furloughed in upcoming week because of the fallout from current events.
One area all NFPs should investigate thoroughly is the possibility of business interruption clauses in their contracts. Lease contracts often provide rent abatement for “Acts of God” preventing the normal operation of the organization or if the landlord closes down the building. Yes, there is a good reason for the landlord to close a building in an epidemic, but it is good for any NFP management to understand what its options are in the circumstances. Perhaps a negotiated settlement fair to all parties can be reached. Needless to say, rent is often a major expense for any organization and an abatement for the period of the national emergency could be a lifesaver for an NFP. On the other side of the coin, many NFP organizations may also be landlords. Knowing if your lease contains an “out” clause for tenants could be a nasty surprise, but it is better for management to find out about it now rather than later.
NFP management should also take the time to review other contracts where services are contracted or services are being provided. These contracts may contain force majeure clauses. Management will also want to know if there are liquidated damages clauses in these contracts. A liquidated damages clause will spell out what one party may have to pay the other in case of nonperformance under the terms of the agreement. Contracts with major vendors and customers should be reviewed because of the material consequences such clauses could have on its future operations.
Finally, NFPs should consider opening up a general ledger account where losses from this crisis can be accumulated. No one knows how long the current state of affairs will continue or what the federal government will do about losses sustained by NFPs because of it. If the federal government does provide additional relief, you can bet there will be reporting requirements. It is better to be ahead of the curve and have the information neatly stored in one place and readily accessible.
More to come as the days go by!