Actionable Strategies for NPOs to Survive and Thrive Long Term

Actionable Strategies for NPOs

Challenges facing NFPs for 2020 and beyond

Actionable Strategies for NPOs to Survive and Thrive Long Term. In late March, uncertainty surrounding the crisis had peaked. Companies, large and small, were performing urgent scenario analysis of how long they could survive in a climate of severe physical restrictions. Businesses were making immediate decisions to close the doors and government supports were too ambiguous to count on. Estimates of the economic and employment impact on the non-profit sector projected losses of $15.6 billion in revenue and about 194,000 in jobs.

Roughly two months later, the Canadian economy is opening up and this provides hope. However, months into the crisis we still do not have certainty into how long distancing measures will ultimately last. The path to recovering from the underlying health crisis may look a lot like rolling blackouts – spikes in physical activity followed by slowdowns. We may expect economic activity to follow a similar pattern from here on.

Some non-profit organizations will be impacted less by physical distancing measures than others. Different business models mean different levels of exposure to the risks facing non-profits for the rest of 2020 and into 2021.

The Revenue Problem

There is a point where if a non-profit organization (NPO) cuts anymore costs, it will cease to exist. From what we are hearing, many NPOs have already hit this wall.

This guide will discuss the government supports available that can reduce or subsidize certain operational costs toward the end of the document. However, the focus of this guidance is on revenues. A successful non-profit survival strategy will be driven by revenue generation.

Revenues from in-person events (fund-raisers / conferences)

Many NPOs that depend on running fund-raising events, conferences, or networking events have been completely shut down. Optimistically, we can all hope that large in-person events can resume by Spring of 2021. Realistically, given what we know about the spread of Covid-19, large gatherings of people in a conference or dinner hall setting will be one of the last restrictions to be removed.

How important are these in-person events to your stakeholders?

The underlying strategic question your organization needs to ask is – will your stakeholders rush back to your fund-raiser / conference the minute that all Covid-19 restrictions are lifted?

For some NPOs, like trade associations, we believe this may be the case. We expect certain industries to invest in an effort to let everyone know they are back and open for business, and there is no better way to do that than to pool resources and launch a campaign.

However, other NPOs may have a less targeted impact on their constituents. They may be offering conferences to enhance networking opportunities and disseminate knowledge. They may have stiffer competition. These types of NPOs must brace for a 2021 that may not yet be normal.

Depending on who is funding the professional development, attending these events may not be viewed as a priority, especially if the Canadian economy has not bounced back.  

Minimize risk when cancelling your events

There is a potential double-impact here for some NPOs. Large events and gatherings often require large deposits in advance as well as binding contractual commitments. Intuitively, organizations may want to move events to the 2021 calendar but consider if events need to be pushed out further than that. NPOs must absorb the entire risk that people may not attend these functions. This risk decreases the further you are able to postpone the event.

Digital Strategy

A common thread in this guide is to challenge NPOs to evaluate their digital strategies. Since mid-March, many organizations went from using digital to enhance customer experience and employee collaboration to complete dependence on digital. However, investing in a digital transformation is not for all NPOs.

For NPOs where large in-person gatherings were a key revenue source, the question becomes – how can we continue to provide our stakeholders value through a digital or virtual strategy? If digital delivery completely contradicts your value proposition – don't invest in it.

If there is some portion of your activities that could continue digitally, treat it like any other investment. Develop a business case and evaluate the risks in the current context. Two key areas of focus:

  1. What will your revenues look like?

In Toronto, which has a high rate of yoga-studios-per-capita, most yoga studios went online as soon as they could. It simply required an investment in a zoom account to re-create what has traditionally been an in-person gathering.

But anyone who's attended an online yoga session knows that it's just not the same. The reality is that take-up is low and you simply cannot charge the same for an online class.

Online offerings are often heralded as scalable: you can only fit 30 people in a real yoga studio whereas now you can accommodate thousands of people virtually!  But the real risk to your organization is that take-up is low and the price you can charge is a fraction of what you were charging before.

  1. How much will digital transformation cost?

If your board of directors believes that a permanent online offering is part of a long-term strategy and not simply a reaction to Covid-19, then you must evaluate the cost of the investment. Know this: you are not the only ones thinking about a digital transformation. That means consultants in the web-development space will be costly.

A digital transformation today is a lot like what it was to try and buy toilet paper in March – long wait times, high prices, and not a huge sense of satisfaction once you get it.

Consider saving costs by really focusing on what your value proposition is and how it would translate to an online offering. Is there something cheap off-the-shelf that you can use for a trial period? Also consider running a competitive request-for-proposal process. Limit scope and increase the competition, while holding the costs of running the RFP process in check.

One immediate action NPOs can take is to survey your stakeholders. The more you can focus what exactly your online or digital offering will be, how much people are willing to pay for such an offering, and how frequently they would participate – the more informed your business case will be.

What is the connection between annual membership dues and your annual conference?

For many NPOs, annual membership fees / dues or a subscription model may often be tied to event-based revenues above. Often, members get a discounted rate to attend an annual conference along with benefits such as industry-specific toolkits and reports.

This "bundling" is a clever way to engage your stakeholders on a year-round basis. It's also a great pricing strategy. But with no large in-person gatherings permitted – this strategy poses a risk in 2020.

Evaluate what member benefits you can provide in 2020. Pricing should not depend on your cost structure. It should be driven by what your members would be willing to pay during a recession.

Pricing upcoming membership dues

Underlying this pricing exercise is determining how "sticky" your membership is. Not all association or trade membership are equal. Some professional, license or trade associations are required under legislation, regulation, or professional standards. It's like auto insurance – you need to pay it if you want to drive.

But consider: even the auto insurance industry is providing relief and discounts given the extent of the crisis. We have seen many NPOs offer relief (deferrals, discounts, forgiven amounts) even though their members may be legally obligated to pay dues to continue operating their businesses.

Losing members can more detrimental to your organization's long-term success than taking a hit on your revenues. If you have ever priced how much it costs to gain a new member – you will appreciate that the concession to your members is a small price to pay. This will create goodwill with your membership during a time of need. If you are able to continue providing the back-end services your members value, such as cutting-edge tools, resources, databases, directories and networks – then determine what would be an affordable price to charge your members that will maximize your retention of members.

One final point to consider about membership fees is the time lag. Many membership dues were collected before Covid-19 restrictions took place. Maybe you collected membership dues in January 2020, and so your organization got paid before the cash-crunch took hold in Canada. We would recommend you plan to discount for 2021. This recession is going to be severe enough that we can expect discretionary spending for organizations and individuals to be quite limited for 2021. Don't take your good timing for granted.

Revenues from tuition / course fees

Public colleges / universities

Many NPOs generate substantial revenues from offering courses. This includes public universities and colleges that are charging fees for their services but also receiving government grants. Out of necessity, colleges and universities have moved to an online method of delivery for their students with mixed results. But finishing the current semester is a far different challenge than planning for fall enrollment.

Due to travel restrictions, many international students will not be able to attend Canadian universities, creating a serious funding gap. It's unclear how best to manage this challenge. For most universities, international students are charged a considerably higher tuition.

At the same time, unemployment is high. Education is a friend to the unemployed. Many, who are in a position to take time to gather and gain new credentials and skills, may go back to school and actually prefer a virtual course offering. Adult learning has been a focus for almost all post-secondary institutions, but a shift in recruiting efforts may help overall enrollment and tuition revenues for the 2020 – 2021 academic year.

Industry training / specialized courses

Many NPOs have a department to provide training to its members or to the general public on behalf of its members. Some outsource this function, some get volunteers to deliver in-person training, and some deliver an online course.

There is added demand for training or educational products during Covid-19, when many adults are unemployed and may have the time and opportunity to retrain. There is also an abundance of competition. Consider what offerings would be successful, but also compliment your rollout with a marketing plan and sufficient time to increase take-up of the course.

Revenues from "big money"

For simplicity, we have grouped "big money" into one section, although we recognize it is much more nuanced than this.

Corporate sponsors

Corporate sponsorships will depend on the health of the corporations as well as your organization's ability to continue the programming they want to sponsor. Musicians are actively thinking about new ways to perform live (drive-through theatres and online streaming).

These physically distanced events may solicit sponsorships. Corporations that are thriving during Covid-19 may view these types of events as valuable branding opportunities because live content (and entertainment in general) is so limited.

Corporate sponsorships for events and specific programs take us back to how successfully your organization can deliver these events or programs in a physically-distanced world (analyzed above under revenues from events).

Big donations, government grants, income from endowments

Big donations (from corporations or individuals) and government grants depend on factors that are largely out of any particular NPO's control.

If your organization is highly dependent on this type of "big money," then it's important to get your strategic, financial and operating house in order before making any phone calls. What is your financial plan to get through 2020 (including various Covid-19 scenarios)? What is your operational plan and how have you maximized emergency subsidies (wage subsidies, rent subsidies, etc.). Finally, show your governance boards that you have been thinking about the longer-term organizational strategy – 2021 and beyond.

With this comprehensive review in hand, you will be in a position to specify the resources you believe your organization will need in the short and long term.   

Revenues from individual donors

This could be the trickiest revenue base to estimate. While your donors are probably still just as passionate about the cause as they were last year, with so much economic uncertainty people may simply take this year off in terms of making donations.

Some employers automatically deduct donations on behalf of selected charities for payroll. These types of donations may be "sticky," as they are directly tied to employment. At risk are donations coming from people that are now unemployed, shuttered small businesses, or people that cut a cheque in December for tax purposes.

NPOs recognize that most donation dollars are discretionary. Charity is very much focused on Covid-19 this year. Donations of masks and gloves are perceived as making a bigger societal impact in 2020 than other causes. Even corporate donations may be re-profiled toward assisting Covid-19 related efforts directly.

While asking your donors for money at this time is difficult, surveying your donors or stakeholders may help you complete this forecast.


This could be the trickiest revenue base to estimate. While your donors are probably still just as passionate about the cause as they were last year, with so much economic uncertainty people may simply take this year off in terms of making donations.

Some employers automatically deduct donations on behalf of selected charities for payroll. These types of donations may be "sticky," as they are directly tied to employment. At risk are donations coming from people that are now unemployed, shuttered small businesses, or people that cut a cheque in December for tax purposes.

NPOs recognize that most donation dollars are discretionary. Charity is very much focused on Covid-19 this year. Donations of masks and gloves are perceived as making a bigger societal impact in 2020 than other causes. Even corporate donations may be re-profiled toward assisting Covid-19 related efforts directly.

While asking your donors for money at this time is difficult, surveying your donors or stakeholders may help you complete this forecast.

NPOs that have unrestricted reserves and were saving for a rainy day – it's raining! With an appropriate cost-control strategy in place and ensuring you have maximized your government supports, then there is nothing wrong with using internal reserves to fill the funding gap in 2020.

Internally restricted reserves, which were likely set aside for long term projects, present a more difficult decision for your board of directors. Board members must develop a sound near-term strategy to determine if the organization should re-profile internally restricted reserves.  

Before making this decision it's important to conduct a financial, operational and strategic review to give your board confidence that they are not making a short-sighted decision. Covid-19 will go away. Any investments made during this time have to make sense under more normal circumstances and your original mandate.

Externally restricted funds are difficult to re-profile. However, until you review each agreement and evaluate potential flexibility by the donor on how funds may be used, you won't know what you have. Depending on the nature of the agreement and restrictions, there may be ways to leverage the funds as collateral to borrow for immediate needs.

In addition to cost control measures, there are a number of subsidies available to the NPO community. These include tax deferrals, forgivable loans, wage, and rent subsidies that are available to the NPO community at-large. There are additional programs available to NPOs that are assisting vulnerable Canadians:

Visit the Welch LLP Covid Resources Hub to learn more: https://www.welchllp.com/covid-19/
Government assistance has been evolving rapidly during the crisis. It can be overwhelming to track all the different types of assistance available and confusing to understand whether or not your organization is eligible for any of these programs.

Welch is actively supporting its NPO clients and the broader business and charitable community. Please feel free to reach out to us and one of our NPO specialists would be happy to discuss your situation. We have assembled an expert multi-disciplinary team to assist all types of clients to navigate their way through this crisis.  

Welch has created an Economic Survival and Recovery S.W.A.T. Team to guide our clients successfully through the "survival" stage of this pandemic, and ultimately emerge strong during the economic "recovery" stage and beyond.
Welch's Economic Survival and Recovery S.W.A.T. Team is comprised of experts in key areas that can provide comprehensive coverage and insight in key strategic areas:
Human Resources: Understanding the laws and rules around making the hard organizational and staffing decisions;
Tax: Effectively utilizing the new rules related to tax deferrals (who qualifies & how do they work) and optimizing tax-planning strategies;
Government Programs: Making sense of all the subsidies out there - determining who qualifies, how to calculate your subsidy amount and how to apply to access the money;
Bank loans and credit facilities: Understanding banking arrangements and helping clients negotiate new terms or stronger terms;
Cash flow: Supporting financing requirements with projections/cash flow analysis and alternative capital;
Opportunities: Strategizing on new business opportunities that will emerge from COVID-19;
Insurance: Understanding what part Business Interruption Insurance will play, if any.

On March 26th, Imagine Canada estimated that in a worst-case scenario that involved six months of enforced isolation: https://www.imaginecanada.ca/en/360/covid-19-threatens-devastate-canadas-charities

Author

Umar Saeed, CPA, CA
Partner
usaeed@welchllp.com
(647) 288-9200 ext 412