The COVID-19 pandemic has greatly disrupted the overall economy, with unprecedented state government expenses, historic job losses, shuttering of businesses and volatile stock markets. The implications for nonprofits that rely heavily on state funding and individual and business donations are obvious. But this isn’t the first economic downturn the sector has faced. Experiences such as the Great Recession of 2008 provide some lessons on how organizations can weather the financial threats.
1. Evaluate your financial position ASAP
This isn’t the time to stick your head in the sand — you need a solid grasp of where you stand before you can make informed decisions and properly plan your next steps. Your CPA can help you calculate the key financial ratios that will tell you, for example, how many months you could continue to operate with no additional revenue.
You also should develop realistic revenue projections for the short and the long term. The projections should include only the funding you’re reasonably certain will come through based on current circumstances; don’t make assumptions based on historical revenue patterns.
2. Communicate your needs clearly
Don’t be shy about sharing your revenue shortfalls with the people and organizations that can help. Like you, they have many distractions at the moment, so put yourself on their radar.
Let donors know about your funding gaps and the tough choices you’re facing as a result. Your storytelling may prove more important than ever now, as you drive home the on-the-ground effect of their contributions. But you also must include an explicit call to action, with a link and instructions for how they can pitch in. Additionally, be sure to also remind them of the tax benefits. (See “What your donors need to know about taxes and contributions.”)
Reach out to your grant makers, too. Ask if they can increase the amount or expedite disbursement. If necessary, also ask if they can loosen or lift any restrictions on the funds. They’re already invested in your survival and may be amenable to such shifts if required to continue operations.
3. Consider alternative funding sources
It’s always advisable for nonprofits to maintain multiple revenue streams. Those that rely on a spring gala, for example, learned that lesson the hard way this year.
If you’re overly reliant on one or two sources of funding, now is the time to consider additional sources. You might, for example, provide services to your chapters or members on a fee basis. Also stay on top of the various government-backed lending options related to the COVID-19 crisis. The Paycheck Protection Program, for example, offered forgivable loans to qualified small businesses (including some nonprofits) with 500 or fewer employees. The application deadline was June 30, 2020, but it’s possible that additional opportunities will emerge from Congress.
4. Partner with other organizations
Some nonprofits could benefit from collaborating with like-minded organizations, whether in a merger or joint venture or something less formal. Two or more nonprofits could, for example, see substantial savings from sharing space. This type of arrangement may work especially well if you team up with an organization that serves the same population.
You needn’t stop at workspace. You could cut costs by sharing staff and equipment, as well. And you could consolidate your buying power with other organizations and leverage it to secure lower rates, discounts and perhaps better service from vendors.
5. Prioritize your spending
Most nonprofits are accustomed to keeping a close eye on their spending, and that scrutiny must continue. Cost cutting probably is unavoidable but should be strategic, rather than uniform across all expense categories.
Don’t just focus on the immediate bottom line savings when making cuts. Consider, too, the impact of the expense. As much as possible, try to preserve the spending on the programs and services that are making the most difference now, diverting funding from lower-impact programs or those still in development if necessary.
Making the right staffing decisions
Nonprofits across the spectrum likely will need to trim costs this year, and many may look to staff expenses. While the immediate savings are obvious, organizations should tread carefully when making staffing decisions, looking beyond just salary.
It’s important, for example, to determine which employees are essential in light of your adjusted strategic plans. Employees who work on programs or projects that will end up on the chopping block perhaps should go before those who work on the initiatives that will survive for the long run.
That said, don’t be too hasty. Also consider which employees might have value in other positions. When you lose a grant or contract, your first instinct might be to eliminate the positions dedicated to the related project. But, if some of those employees are clearly star performers, you might want to find other ways to keep them on board, such as paying their compensation out of general operating funds or moving them onto a program or project where you still have funding.
Your CPA can help
The effects of the COVID-19 pandemic are far reaching and, in some ways, novel. We can help you determine how best to confront them so you can continue with your mission. Feel free to contact us today.
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