Like many other industries in 2020, the Coronavirus recession has had significant downstream impact on many nonprofits’ financial health. The Wall Street Journal reported on how the canceling of galas, auctions and fundraisers has wiped out major sources of donations. Moreover, the affect the virus is having on people’s wallets, particularly those furloughed or recently unemployed, is causing many Americans to tighten their spending — charitable giving included.
To weather this storm, nonprofits must use all the management and finance tools available to them. Nonprofit leaders not accustomed to recession finance in particular may be unfamiliar with the principles for managing their organization during an economic slump. That is why BPM has compiled this list — to draw nonprofit leaders’ attention to the operational areas that should be at top of mind.
1. Plan for the long term.
If your organization’s financial position has shifted suddenly, the tendency can be to focus on immediate solutions. However, when making major decisions about your expenditures, it is essential to remember that for your organization to accomplish its mission it does not need to survive for just a few weeks or months — it needs to survive for the long haul.
So long-term planning is essential, but how do you accomplish that? By using the financial tools available to you. Cash flow forecasting, for instance, helps you understand your future position by extrapolating from your current income and expenses to predict the future needs of your organization. The result is an amount of time your nonprofit could remain open and pay all of its obligations such as payroll, rent, etc. If what you find is not satisfactory, you may need to rethink your budget.
For an idea of what goes into a cash flow forecast analysis, readers may want to look at one of the numerous small business cash flow forecasting templates that can be found online. But for more complex situations, nonprofits will really want to seek expert help.
Economic forecasts, which look at the factors beyond your business’s control that nevertheless affect your business, can similarly help you determine how long you may need to reduce expenses. General economic forecasts are produced regularly by governments, NGOs, research firms, and other institutions, and can be helpful to a degree. However, to get data that is relevant to their specific organization, nonprofits will likely need to procure custom, tailored analyses.
And on the subject of budgets — if you are not already, you should really be reviewing your budget every month and making adjustments or revisions as necessary. If there is one positive thing that comes out of this recession, it should be the renewed commitment among nonprofit leaders to financial discipline.
2. Pay only for what you really, truly need.
This might seem obvious, but unless you go through all your expenses and prune aggressively on a regular basis it is easy to get saddled with unnecessary contracts for supplies, services and other costs. When things are tight, this matters because things like supplies or office space are more easily replaced when the crisis is over; good employees are lot harder, as they will most likely have moved on by the time you can re-hire them. Additionally, the loss of a knowledge base and the cost associated with the time it takes to retrain and rebuild that knowledge base might diminish any short-term cash savings from laying off employees. That being said, if keeping on staff comes at the expense of the financial security of the nonprofit, the decision has really been made for you.
Staff can be a major cost, but depending on the type of nonprofit you lead, your organization may have contracts for essentials like leased equipment, rent and insurance, as well as less essential perks such as health club memberships or fringe benefits. Obviously, these nice-to-haves should be done away with before the essentials. But even core operating costs can often be reduced by reviewing your contracts and re-bidding, renegotiating or reducing your level of service where possible.
Another fruitful option would be exploring subleasing office space, especially if you have had a reduction in staff or have more staff working remotely going forward. Also consider delaying major capital expenditures or other investments unless there is a really good case for doing otherwise. And while you are at it, do not be afraid to reign in discretionary spending. Although this may not be a popular choice among staff, if you explain to staff the reason for doing it — that it is key to the long-term security of the organization — this may lessen the sting.
One word of caution, however: While you are in the cost-cutting mindset, it is still important to be mindful of the long-term consequences of your decisions. If you decrease or cut spending now, also think about what that will do to you in the long term. For example, significantly reducing a contract or canceling it for the short term only to start that work up again down the line could have the long-term effect of your organization paying more overall due to cancellation fees, rush fees, overtime, and the like. As always, there is a balance that needs to be struck.
3. Use the time and manpower you have efficiently.
This recession is the perfect time to put your organizational management skills to full work. To ensure maximal efficiency, employees should review with managers all the activities on which they spend their time, with an eye towards identifying tasks that may be more efficient to contract out.
In a similar vein, where there is a need for specific talent, nonprofits may want to consider hiring freelancers and other outsourced labor rather than hiring an in-house, full-time, permanent employee. Often, the idea of having your own in-house employee at a relatively “competitive” rate is a false economy, especially if there is not a full-time amount of work for them to do or the work needed falls outside of their specialization.
Lastly, before you consider effectively permanent approaches to reducing labor costs, consider other options such as reduced hours, benefits or a shortened work week. Layoffs can actually be surprisingly expensive after severance packages, unpaid vacation and other expenses are said and done, so these non-permanent solutions can not only be more ideal from a staffing standpoint, they can also be more economical in certain situations. Labor laws do apply here, though, in many jurisdictions, so tread carefully and seek out a labor compliance expert where necessary to avoid any potential lawsuits or penalties.
4. Reconsider your marketing strategy.
As referenced earlier, many nonprofits are highly events-driven for getting the donations they need to run their operations. This is far from ideal during this pandemic when all large gatherings are banned, or at least unadvisable, across most of the U.S.
The marketing function of your organization must respond to this. The most obvious change they should make is to switch from in-person events and the use of mailers to an all-digital approach. This may mean holding virtual events, for instance, or it may mean starting a digital newsletter to keep your organization at top of mind to your benefactors. The point is to meet people where they are, and while you may be able return to having the same in-person events, you held in the past, you might also find a digital version worth holding onto.
Additionally, in light of the effect this recession has had on workers, you may have a harder time convincing former backers to continue with small donations. Instead of spending your time on this demographic, you may want to instead expend more of your efforts on convincing larger donors to give a little more, or on attracting new donors. As the Chronicle of Philanthropy observed all the way back in April, many wealthy donors are giving more to charity than ever before. If you do shift your marketing strategy in this way or any other way to respond to the economic slump, make sure all your organization’s marketing materials, messaging and fundraising tactics are adjusted to align with this new strategy.
5. Get help.
Since your time and resources are more valuable than ever, consult a finance professional familiar with your industry who can help you think through the implications of all of these considerations. Since no two organizations are alike, there is no one-size-fits-all approach. If your organization does pay taxes, reach out to a tax professional to strategize ways to minimize your tax liability. Or if you need a robust payroll system to manage your newly remote workforce, find an accounting firm that specializes in Human Resources and ERP system implementations. The theme here is when you need help, ask for it. Change is almost never as straightforward as it seems and unforeseen complications can be costly, so do not try to go at it alone.
BPM for Nonprofits
BPM is one of the largest California-based accounting and consulting firms, ranking in the top 50 in the country. Our Nonprofit Industry Group, one of BPM’s most established practice groups, consists of over 60 professionals across our tax, assurance and consulting practices. One of our founding goals is to make a difference in the manner nonprofits are served by our profession. Each member of our group brings differing expertise from our tax, audit, consulting and accounting departments. Together we provide a comprehensive understanding of the functions needed to operate a nonprofit organization. For more information, visit https://www.bpmcpa.com/Nonprofit.
Do not forget to make sure to take advantage of all applicable government programs and emergency funding sources available to you. Learn more about the available nonprofit relief opportunities under the CARES Act, Foundation COVID-19 Response Funds, and more on our COVID-19 Resource Center.