In the COVID-19 World, Not-for-Profits Have Two Choices: Change or Close Permanently

Not-for-Profit | Prager Metis | Dec 16, 2020

Here is a headline of an article I wrote for Long Island Business News in September of 2019, a little over year ago:

“The Argument for Not-for-Profits to Change Everything”

However, as it turns out, not-for-profits (NFPs) didn’t have to change everything; COVID-19 took care of that for them. The emergence of a global pandemic gives even more urgency to that original headline. That’s not to say that NFPs have to change everything, but if they want to remain relevant, and meet their mission, (and realistically, if they want to survive) they may need to change, and maybe they must change a lot.

Before we talk about what may need changing and how to change it, let’s revisit a point I made in that original article. “Not-for-profit” is something of a misnomer. That is, NFPs operate similarly to for-profit businesses—they have revenue streams, promotion and marketing to increase revenue, and the same expenses as any business, from office rent to copier ink.

Like a for-profit business, they also work very hard to make sure revenue outstrips expenses, and when it does, they earn, yes, a profit. But, unlike a for-profit business, any revenue left over after expenses does not go to owners or shareholders, but back into the organization to expand its services and meet its mission. Those are all givens, but as the National Council of Nonprofits declares on its website: “We’re in a new world now.”

How new? Here is just one example from the publication Nonprofit Quarterly with a story headlined: “Is It Time to Break the Lease and Imagine Shared Spaces?” As the article states, “The pandemic and our digital age have combined to make now a good time to evaluate the operating costs and overhead savings of eliminating your NFPs office space, which could ease cash fl ow and reduce expenses.”

And how vital might easing cash flow and reducing expenses be to an NFP? A survey on the National Council of Nonprofits website asks NFPs for their “stories” and it gives us a glimpse of what’s changed, and needs to change for NFPs. A question that asks, “How has the pandemic affected your nonprofit?” offers a dozen choices, from “Moved fundraising events online” to “Furloughed or laid off staff ” to, sadly, “Expect to close permanently.”

Of course, NFPs come in an endless variety with unique challenges.

But while there is variety in these choices there are also certain constants of business planning that an organization like ours would advise any NFP to implement. In fact, there are five. And while they may not mean changing everything, they may require a change in thinking about “the way we’ve always done it.”

  1. Let’s begin with the very first question we would ask: “Do you have a well-thought-out strategic business plan?” Never forgetting that an NFP is a business, step one is reviewing your current financial situation, both debt load and perhaps unexplored options for funding.
  2. We would consider each of your activities—client services, donor outreach, membership growth, etc.—as a separate program, like a business-within-a-business. Focusing on each separately will more readily reveal weaknesses.
  3. Next, we would exam each program’s financials and evaluate fiscal strengths and weaknesses. What is the P&L for each program? Is there a surplus of funding? Is there a debit because of underfunding, or lack of efficiency? And, can the success of one program be duplicated in another?
  4. Since NFPs tend to be labor intensive, with the full range of positions, from CEO to direct-to-client employees to a receptionist, we would look at staffing as a separate entity. If cuts in funding mean, or have meant, cuts in staff , how is/has that been accommodated—without affecting level of service?
  5. And finally, the strategic business plan that results would be put into an action-document, with specific recommendations and the timing of each action to be taken.

In a weird way, the COVID-19 pandemic has delivered a positive to NFPs, and for-profit entities as well. It has prompted them to think differently about their businesses, and to some extent even forced them to re-imagine what they do and how they do it. In good times, if we encourage an organization to implement that five-step plan, we may get pushback, “Oh, I don’t think we need to do that.” But since we really are in “a new world now,” the pushback has all but disappeared.

Nov 14, 2022
Fernando R. Lopez

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