Cost Cutting Methods to Help Your Nonprofit Survive

Shortages abound in this COVID-19 world, and that includes contributions and grants for many nonprofits. Most organizations face hardships as governments reallocate funding to combat and contain the virus. Add to that lower contributions from donors who have also been affected by the pandemic, and cost cutting is more important than ever.

As basic accounting dictates, the only way to stay afloat when revenue streams decrease is to lower expenses as well. Here are some measures you can consider to keep your nonprofit operating.

Refinance Loans

It’s no secret that loans help to expand operations. Yet many organizations have loans that have been outstanding for years. Perhaps it’s time to consider refinancing these loans for a lower interest rate.

In March, the prime interest rate dropped to 3.25%—its lowest point since December 2015— and has stayed there since. And in July 2020, the rates on 30-year fixed rate mortgages (3.02%) and 15-year fixed-rate mortgages (2.52%) hit their lowest levels in 50 years. If your nonprofit has an older mortgage or other outstanding loan, consider taking advantage of these rates.

You should also consider opening a line of credit if your nonprofit doesn’t already have one. When cash flow is tight, the last thing you have time for is the loan application process. An open line of credit gives you access to funds right away, when you need them the most. Again, historically low interest rates make this an even more viable option.

Revisit Your Banking Relationships

A key to having successful operations is choosing the right financial institution for your banking needs. Plenty of banks waive fees or give higher savings account interest rates for nonprofit clients. You might be able to leverage these benefits to save money or get a little extra from interest.

Studying your existing accounts to see whether you’re being charged avoidable fees can be a shrewd cost cutting move. It may even make sense to change banks altogether.

Reduce Your Credit Card Processing Fees

Credit card transactions are almost unavoidable in the 21st century. Since they make giving to charity quick and easy, nonprofits have embraced this payment method. However, they come with fees attached—and those fees add up when you’re struggling with reduced donations.

With so many credit card processors on the market, you might reevaluate which works best with your business model. For example, let’s say your processor charges a monthly subscription fee plus a low fee per credit card transaction. But you don’t receive many credit card payments per month. You might save money with a service that charges more per transaction but has a low (or even no) monthly fee.

Explore a State Unemployment Tax Alternative

Employers in most states are required to pay the payroll tax related to the State Unemployment Tax Act (SUTA). SUTA funds the state’s unemployment insurance system to provide unemployment benefits.

However, 501(c)3 nonprofits are eligible to elect out of paying this tax. If they do, they instead must reimburse the state for claims paid out to former employees. The more employees your organization has, the higher the savings potential of opting out of this tax. Just make sure to consider the financial impact of paying a claim if you have to let someone go.

Consider Workforce Reduction

When money is tight, one of the hardest cost cutting decisions to make is whether to reduce your workforce. It’s especially troubling during times like this pandemic, when they’re likely in need. Thankfully, you might not have to take this step.

While it may seem counterintuitive, consider not letting anyone go at all. Reducing your staff would give you some immediate cost savings, but the decision may cost more in the long term. It takes money and time find and train new hires, and there’s no guarantee they’ll stay. It might actually be less expensive to keep current staff with experience working for (and loyalty to) your organization.

However, if retaining employees is not possible, planning for a workforce reduction would be the next cost cutting step.

Outsourcing or Consolidating Your Business Functions

As with commercial entities, nonprofits need business functions to carry out their mission. Ideally, you’d have employees (or a department) for this work. However, there aren’t always enough funds to afford them.

One way to circumvent this issue is to outsource functions like accounting or human resources. Sometimes it costs less to have someone perform these services for you than it would to hire in-house help.

You could also consider consolidating resources with other nonprofits that have similar missions. On your own, you might not be able to afford help with business functions. But if another nonprofit pitches in, perhaps your organizations can hire someone to do the work for both of you. We’ve seen nonprofits do this for accounting, IT services and other back-office functions. (JMCO Partner Mark Payne recently discussed this and other tips on how nonprofits can survive the COVID-19 pandemic.)

As they often say, “A little goes a long way.” While some cost cutting methods may seem too small to matter, they can add up significantly. And that could become enough change to move toward a brighter future.

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