COVID-19 has given rise to uncertainty for all businesses, including the non-profits that often operate on the financial edge in the best of times. The major costs of running any business, such as rent and employee compensation and benefits, continue even though revenue may be down or the business’s operations may be curtailed. Non-profits are not exempt from this situation, and many may be more severely affected than for-profit businesses. They may not have assets that can help secure a loan or receiving income necessary to pay loans, and often have unpredictable income sources from donors and funders who themselves are feeling the financial pinch.
In addition, many non-profits depend on long-term employees with deep institutional knowledge, who cannot be easily replaced if the company needs to downsize in order to pay its bills and continue as an ongoing concern. Restaurants, for example, are being deeply affected by near-total government shutdowns of their business, with the resulting effects on their staff. But hiring a server once the business re-opens is far easier than finding a subject matter expert who may be essential to helping a non-profit fulfill its mission.
As such, in recent days, I have seen non-profits struggle with such fundamental questions as how they will be able to continue to do their work while the Coronavirus runs rampant; how they will pay their rent and their staff with dwindling income; and what their organizations will look like when this is all over (whenever that may be). There are a few basic things non-profits may consider to lessen the financial impact, depending on their individual situations:
– Rent is a huge portion of most non-profits’ expenses, non-profits included. If rent is prohibitive in these times, a non-profit may consider seeking to negotiate a reduction in rent for a certain period (perhaps three months initially). A landlord is not likely to be happy when it receives such a request. But a landlord may prefer a rent reduction to a tenant that defaults on its lease, especially when finding a replacement tenant may be all but impossible. If a reduction is not possible, a partial rent deferral may be a workable compromise.
– The other significant financial outlay companies face is employee compensation and benefits. From a basic human perspective, most organizations try at all costs to avoid staff reductions, especially in these uncertain economic times. But organizations that determine they must reduce payments to their staffs have options for minimizing the impact of those decisions. Instead of laying off employees, organizations should consider furloughs, which are reductions of work for reductions in pay. Orgnizations can get creative about how to construct a furlough program, for example, by rotating employees affected by the furlough on a weekly basis or furloughing individuals only one or two days each week. The risk is that an employee who is subject to a furlough may, of course, seek other employment. But furloughs keep within the organization employees who may be valuable to the organization in the long term, albeit with reduced hours and compensation. And furloughs, like all other employment actions, must be undertaken in a neutral, non-discriminatory manner. In some jurisdictions, furloughed employees may be entitled to unemployment benefits.
– Other options short of lay-offs include reductions in compensation, early retirement incentives, and offering part-time work options. The solutions that are best will differ from organization to organization. But all organizations should, if feasible, consider options that result in the retention of their important employees before deciding to take the drastic step of downsizing its staff.
– All other cost-cutting measures should be looked at and implemented as required. But such steps should be taken through the lens of keeping those things that are essential to the organization’s mission, culture, and values, while shedding costs that are either non-essential or can be reconstituted once the economy and the nation’s health return to a more normal condition.
Author Adam Chud, Esq. is a partner at Goodwin law firm, and specializes in employment, insurance, and non-profits.
