While the vast majority of not-for-profit (NFP) organizations responding to a Baker Tilly survey noted that the coronavirus (COVID-19) pandemic has had a major impact on their operations, the reasons why are as varied as their missions. Somewhat surprisingly, a significant minority of NFPs noted upsides to the pandemic that may benefit their organizations in the long run.
In the survey of 100 NFP organizations, 73% of them reported that the pandemic negatively affected their organizations, and, in fact, more than half (55%) said it had a “major impact” on operations.
Respondents’ top pandemic-related issues were:
Ellen Labita, healthcare and NFP partner at Baker Tilly, said the extent of the pandemic’s effect generally correlated to the NFP’s mission.
Since most human service agencies, for example, are considered essential, they continued to operate. Many incurred significant additional costs, however, because they had to reinvent their program delivery models. These costs included creating virtual program settings, buying personal protective equipment and incurring increased program-specific costs, such as relocating homeless shelter clients to hotel rooms. Some or all of these extra costs may be reimbursed by the government and other funders.
On the other hand, Labita noted that some NFPs, including many museums and performing arts groups, for example, closed completely, curtailing revenues they rely on from admissions, ticket sales and gift store purchases. Some have responded with online offerings to continue programming. With social distancing practices expected to be enforced indefinitely, these types of entities are having to rethink their path forward since for some that will mean severely limiting their crowd size and for others staying closed until the pandemic is over.
NFPs that rely on special events have had to cancel or postpone in-person events. Some have forged ahead by hosting successful virtual events.
More than 70% of respondents said their organization took advantage of the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The PPP provides cash-flow assistance through 100% federally guaranteed loans to qualified small businesses, including NFPs. One of the key attractions for a PPP loan is that recipients can apply for forgiveness of the loans if certain conditions are met.
Labita said NFPs awarded PPP loans must keep meticulous records for expenditures of the loan proceeds, especially the amount spent on expenses qualifying for forgiveness (generally salaries and benefits, mortgages, rent, utilities) and the time period during which the PPP funds were spent. The SBA has revised PPP regulations and guidance several times since the program started in March, and being able to demonstrate compliant use for loan forgiveness and possible audit is essential.
The overall negative effect of the pandemic is not a surprise, but the 8% of respondents that said it had a positive impact. “Some NFPs embraced being forced to create different ways to deliver services,” Labita said. “They may retain some of these platforms and find they might be more efficient as time goes on.”
For example, some human services organizations have realized the value in having virtual meetings among team members as well as with certain clients for services like tele-therapy, job training sessions or education programs. The calls eliminate travel time and safety concerns.
Often, though, technology can be an obstacle, either on the side of the organization or the client. For NFPs, the pandemic has justified investing in better technology, which is an area where NFPs typically lag behind their for-profit counterparts.
If they haven’t already, NFPs may need to update technology, since, as Labita said, “it looks like organizations may not be bringing all their people back on site quickly because of the need for social distancing,” and they may continue offering services virtually in the long term.
Labita said it is hard to determine at this point the longer-term effect of the pandemic. As we emerge from the pandemic, governments and other funders may re-prioritize how they distribute available funding, and the overall pool of funds is likely to shrink. NFPs will likely need to find new sources of private funding and continue to focus on reducing costs, especially by expanding their use of technology to simplify processes and deliver efficient programming.
Fundraising will be a challenge due to limitations on in-person interactions. NFPs will have to find other ways to remind donors the importance of their missions with the goal of sustaining existing support and increasing new sources for contributions.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.