COVID-19 forces a focus on operating costs

The COVID-19 pandemic and resulting recession have put many nonprofits in an unprecedented predicament. Revenues have dropped precipitously as organizations struggle to continue their missions in a dramatically different environment. And they face mounting unexpected costs as they try to protect the health and safety of their employees, clients and volunteers while doing so. It’s almost inevitable that most nonprofits must cut their operating costs — but where to begin?

Troubling revenue losses

COVID-19 hit nonprofits hard, fast and right where it hurts — revenues. Organizations of all kinds saw funding dry up as major events were canceled and donors held back in fear for their own financial stability.

Based on surveys conducted from March through May 2020, for example, the Massachusetts Nonprofit Network found that organizations in the state suffered estimated initial revenue losses of a whopping $8.6 billion. On the other side of the country, a survey done by the Alliance of Arizona Nonprofits revealed almost $53 million in lost revenues as of June 11.

Perhaps the most obvious impact of such dramatic losses has been seen in job losses in the nonprofit sector. The Johns Hopkins Center for Civil Society Studies reported that 13% of people employed by a nonprofit in February 2020 had lost their jobs by the end of May. From March through May alone, 1.6 million nonprofit employees were terminated.

4 areas to target

Depending on their individual circumstances, nonprofits pondering budget cuts may want to first consider the following areas:

  1. Staffing

As noted above, many nonprofits already have made moves to shrink their compensation costs, including layoffs, furloughs, reduced hours and pay cuts. And your organization likely has performed similarly. You also might trim employee benefits, for example, requiring higher insurance co-pays or halting matching contributions to retirement accounts.

If stay-at-home orders forced you to temporarily transition your employees to remote work, you might want to extend this status with some of them. A smaller on-site workforce will reduce your need for office space. Your overhead expenses, such as those for office supplies, maintenance, insurance and utilities, will decline, too.

  1. Capital projects

Major capital projects that have been simmering for months or even years nonetheless require close consideration before proceeding. Painful or frustrating as it is, you may need to cancel or at least delay that new construction.

If you opt to go forward, review the financing terms and see if you can defer payments or negotiate more favorable conditions. You also should try to return to the bargaining table with your contractors in light of the new circumstances. If they’ve had other projects evaporate, they may be open to concessions.

  1. Vendor arrangements

Similarly, you should revisit arrangements with your vendors. Technology is a particularly ripe area for harvesting savings. If you expect to have more employees working remotely permanently, for example, you might be able to scale back on your obligations for printers, copiers, phone lines and supplies.

Additionally, don’t automatically upgrade; you usually don’t need the latest devices and software to get the job done. If your devices fail, replace them with used or refurbished models. Also explore free software options, such as Google Docs or OpenOffice.

  1. Marketing

Marketing is too important to simply abandon — the better approach is to go cheap. You might, for instance, put a pause on pricey direct mail campaigns and advertising, and instead concentrate on digital marketing.

People are obsessively online these days, perhaps more so than ever. You can reach massive audiences with budget-friendly social media strategies that provide strong content and effective calls to action.

The bottom line

The economic effects of COVID-19 will linger for some time. Contact your trusted Hood & Strong advisor who can help you make the best financial decisions to survive the rough waters and position your organization for the future.