Nonprofits of all kinds once again face a nationwide economic crisis, this time caused by the COVID-19 pandemic. The challenges are daunting, but previous recessions may provide a road map for helping organizations navigate the far-reaching effects of the virus. The path forward starts with strategically cutting costs that contains expenses but allows you to continue your mission. Several areas make ripe targets for most nonprofits.
When COVID-19 was first making its presence felt in the spring, many nonprofits resisted laying off employees. Retention tax credits provided under the Coronavirus Aid, Relief and Economic Security Act gave some the breathing room they needed to retain employees.
As the pandemic has dragged out, though, even the organizations most intent on preserving their staffs may now have no choice but to cut compensation costs. The good news is that alternatives to termination may be available.
For example, you could reduce hours or suspend employee benefits. You might trim wages or management-level salaries. You also could allow employees to work remotely, which leads to lower overhead and lower compensation costs.
Facility costs often rank with staffing near the top of nonprofits’ operational expenses. With stay-at-home orders, you may have had your first experience with remote work in the spring. If operations didn’t suffer, you could reap significant savings by continuing in that mode and giving up, or at least shrinking, your office space if possible. You’ll also reduce the need to implement increased sanitation and other precautionary measures against the spread of contagion.
If you’re subject to a lease, approach the landlord about renegotiating, especially if you’re nearing the end of the term. The market for commercial real estate has faltered in the wake of the pandemic and recession, so landlords might prove more amenable than they normally would to rent reductions, abatements or holidays.
Organizations with more than one site could consolidate in a single location and close shop in the others. You may not be able to escape the rent obligations for the shuttered space, but you could eliminate the associated overhead, including costly insurance.
Nonprofits that own their facilities could sell, downsize or rent out unused space. They also could consider appealing their property tax assessments, if subject to such taxes. A lower assessed value normally results in lower property taxes. With property values falling in some parts of the country, your current assessed value may be too high.
Nonprofits should explore renegotiation with their vendors. Those that shift to greater remote work, for example, have less need for maintenance and food services.
Those that have cut staff may find that they don’t require as many pieces of equipment such as computers or printers, or licenses for software. Check for penalty or fee provisions in your contracts before terminating agreements, though.
It also could pay to join forces with other organizations, nonprofit or not, to consolidate your buying power. Or you could consolidate more purchases of goods and services with fewer vendors to obtain discounts.
Don’t hesitate to be assertive in the pursuit of lower prices. It can’t hurt to ask your vendors to offer nonprofit discounts or contribute their services. Do your board members have any connections they can leverage to get you better rates?
Travel, meetings and events
Many nonprofits have seen these expenses fall naturally as gatherings were forced into virtual spaces. But, as with remote work, you may have been surprised at how well virtual meetings and fundraisers have worked. In fact, some report their virtual events have been more lucrative than past in-person events.
For example, one organization canceled its annual luncheon and instead simply requested donations from the usual attendees. It ended up with a substantially larger haul than a typical event would have. Other nonprofits attract high numbers to virtual runs or walks, where participants do the activity on their own and still receive the T-shirt, with far lower overall costs.
Accelerate and defer!
Cost-cutting is only one of the steps nonprofits must take to survive this turbulent time. Among other measures, they also should try to accelerate revenues and defer bill payments.
Start by looking for ways to expedite inflows. You might, for example, determine if the pledges you expect to collect in future years can be converted to current-year funds to support general operations.
You also should reach out to long-term, reliable supporters about moving up their normally annual contributions. In addition to appealing to their loyalty, educate them about the temporary charitable deduction opportunities provided by the Coronavirus Aid, Relief and Economic Security Act.
On the other side of the equation, lenders and utility providers may offer bill deferment programs for organizations affected by COVID-19. Check with your CPA before finalizing any such agreements to ensure you understand the implications of deferment periods, changes in interest rates and amended maturity dates, or feel free to contact us.
Bite the bullet
It’s never easy to make dramatic cuts to operational expenses, but experienced leaders know it’s inevitable over an organization’s life cycle. The key is to use lessons from the past, wield the scalpel strategically and keep an eye on the long run. We have been there before and can help.
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