When governors in Washington and Oregon closed all nonessential business at the end of March, it was a disaster for the Goodwill Industries of the Columbia Willamette. The organization has 53 retail stores and another 39 donation sites. It relies on sales of donated goods at these stores for more than 85 percent of its revenue. With no money coming in and a payroll of about $100 million a year — mostly staff at its stores who could no longer work — the organization had to make hard choices quickly. It laid off about 2,600 employees effective April 2.
“We’re just not in a financial position to carry 2,600 people that were not working at all,” says Bob Barsocchini, the group’s human resources director and general counsel.
In addition to payroll expenses, the group leases about nine sites and has commercial tenants at the locations it owns, many of whom are asking to suspend lease payments. It has to continue to pay security guards to look after its sites and truck drivers to haul away donations that people continue to leave, despite the group asking the public to stop dropping off goods. The organization has retained roughly 170 staff, including those in human resources and finance.
It has enough cash on hand to maintain its operations at this new, scaled-back level, until the end of the year, but Barsocchini remains concerned for the future. “The longer this goes on, the less likely it will be that we emerge with an organization that looks like the one that was closed down on March 23,” says Barsocchini. “Our mission is to provide vocational opportunities. We want to get back to serving that mission.”
Goodwill Industries of the Columbia Willamette is far from alone in announcing layoffs. Nearly 17 million Americans filed unemployment claims in the last three weeks — an unprecedented number. The government does not track the number of layoffs by nonprofit groups, but it is likely that they are as hard hit by the crisis as others. Nonprofits across the country have furloughed staff (a mandatory suspension from work for a period of time where benefits are usually retained), laid them off, or are already considering such moves to help them shore up their finances as they face an uncertain future.
Many nonprofits lack the financial cushion required to ride out a downturn of any length. A new analysis of informational tax returns of 155,000 nonprofits with budgets over $50,000 excluding hospitals and schools by Michael Jones, executive director of the Kautz-Uible Economics Institute at the University of Cincinnati, found that 18,000 groups — roughly 12 percent — had less than two weeks of cash on hand. These groups employ 1.65 million people and will certainly have trouble weathering this crisis. All the nonprofits in the analysis had an average of just three months of cash on hand.
In Colorado, arts groups have already had to lay off staff, says Renny Fagan, CEO of the Colorado Nonprofit Association. His group has created online platforms on Facebook and LinkedIn for its 1,500 nonprofit members to communicate with each other about how they are handling the crisis. It is also developing a network of nonprofit consultants that groups can work with.
In the San Francisco Bay Area, Julie Brown, program director of All Stars Helping Kids, a local grant maker that helps small nonprofits build their organizations, says some of the smaller groups she works with that have budgets around $500,000 a year are already struggling and have reduced salaries. Other groups have had trouble applying for Small Business Administration loans that could help them through the crisis.
Every day, hundreds of emails flood into the inbox of Kevin Dean, the CEO of Momentum Nonprofit Partners in Memphis, which provides services for nonprofits there and advocates for the sector. “It’s been a wild couple of weeks,” he says.
His group normally conducts training for local nonprofits. Those have been canceled, and it is now hosting online sessions related to Covid-19 for his members that feature policymakers and others who provide information about the crisis and resources. It is sharing information about Covid-19 emergency grants and providing time for groups to share information. He says that some groups have started to lay off staff in his region, too. He says some organizations lacked the cash reserves to wait long enough for the stimulus bill to pass.
Get a handle on your organization’s finances.
The current crisis, with its sweeping global impact and unknown timeline, may be unprecedented, but groups can apply a process similar to what they would use for deciding whether to lay off workers during any downturn.
While every organization’s situation is different, the first step is to get a clear-eyed picture of the nonprofit’s finances, says Curtis Klotz, director of nonprofit innovation at the professional services firm CLA (CliftonLarsenAllen). Leaders may find it valuable to consider what they want their organization to look like after the crisis — how it will emerge and how it could be different. “That becomes a launching pad for what they’re doing next,” says Klotz.
Executives should work closely with board members to better understand the impact of the crisis and the options available for the group, says Anne Wallestad, CEO of BoardSource. She says it is important for leaders to be clear with board members about their assessment of the financial and programmatic situation and to ask for input from board members based on their areas of expertise. The board needs to be brought in on the financial plans, including any staffing changes.
“Hopefully, the executive worked hard to build a board that includes important expertise,” says Wallestad. “Now is definitely a moment to use that.”
After the crisis subsides, groups will need to be both financially viable and able to do their programmatic work. It’s unlikely that things will return to normal right away, so Klotz says groups may want to consider what a phased recovery might look like and how long it would take. For example, it may be some time before people go to museums or theaters in the same numbers as they used to. That means that some revenue may be lost forever, some delayed, and some may return quickly.
Be prepared to make tough decisions.
These were hard calculations to make for Habitat for Humanity, Sacramento. The group, like most, was caught without a clear plan for how to move forward. Leah Miller, the group’s CEO, says she is used to planning for disasters — floods or fires or earthquakes. “But a global pandemic never had crossed my mind,” she says.
The group brings in about $120,000 a month in unrestricted funds from its ReStore, where it sells donated building supplies and furniture. The store had to close in March, eliminating that important source of revenue.
Tallying the loss of revenue was easy, as was calculating some ongoing expenses like rent on its building. But the group is also a mortgage lender and servicer. Miller is concerned that some percentage — 10 to maybe 50 or 60 percent or more — of the families it has loaned money to will not be able to pay their mortgages as the stay-at-home orders last longer and people lose income. In that case, the group needs to be able to make concessions so borrowers can defer payments. The last thing it wants to do is make people homeless. What’s more, the group needs to continue to pay the insurance premiums and property taxes of its borrowers. Expenses could balloon even as revenues stall.
And, of course, the group wants to continue its work when the crisis comes to an end. Miller wants to have enough cash on hand at the end of this crisis so the group can restart its work.
“Can we continue to pay our staff without any work to do?” she says. “Unfortunately, we couldn’t.” The organization laid off 27 employees, leaving only three working remotely. Miller made sure the group could cover employees’ health-insurance premiums for the month.
Consider alternatives to layoffs. But if you have to let people go, be smart about whom you keep.
Layoffs are the most extreme tool groups have for managing their financial situation. But they are not the only way to bring down payroll expenses.
Before considering layoffs, groups can freeze hiring and salary increases. They can also halt benefits such as 401(k) matches, says Lisa Wright Ponce, a senior HR business partner at Nonprofit HR.
If reductions in salary costs are required, there are still alternatives to layoffs to consider. Groups can move a large number of employees into part-time roles with accompanying pay cuts. Nonprofits can do what Klotz of CLA calls progressive salary cuts, where workers who earn the least get the smallest pay cut and employees who earn more take increasingly large pay cuts. Groups can even do something called salary leveling where everyone earns the same amount — usually closer to the lowest paid employee’s salary. These measures can save as much as 50 percent of payroll costs without laying off anyone.
Trying to keep everyone on staff, even if each person is earning much less, can have benefits, Klotz says. “Striving to maintain the staff can actually boost morale at a time when everybody is sharing in the burden of reducing salaries, reducing benefits, and reducing their own livelihoods,” he says.
If groups do need to let people go, they should consider how that may affect their diversity efforts. At some organizations, employees of color may have been the last hired. That does not mean they should be the first let go. “That could decimate any gains they have had hiring a more diverse work force,” Klotz says.
In addition, he says, groups often try to preserve programmatic positions over finance, human-resources, or other operational positions, but he points out that these are the people with the skills to help the group get back on its feet after the crisis.
Groups should look at more than job titles, Ponce says. The qualities that employees bring to their work, particularly leadership, will be very important to help an organization get through the disruptive period ahead, she says.
“Who are the people who have incredible skills, who are motivational leaders and visionary leaders that the staff will rally around? Those are the managers who will strengthen your employer brand when all of this is over,” she says. “They will also keep the wheels on the bus.”
If you can keep workers on, be creative about what they can do remotely.
Groups that have a financial cushion have more options in a crisis. Leaders at the National World War I Museum and Monument spent the last half dozen years trying to build six months of cash reserves. It had just about met that goal when the museum had to shut its doors on March 14. The museum earns roughly 40 percent of its revenue from ticket and gift-shop sales — leaving it with a gaping revenue hole.
But the museum’s executives had already spent weeks doing financial projections to determine how it would fare if it had to remain closed for varying lengths of time. No matter what happened, it would have ongoing expenses for the maintenance of its building and 47-acre park.
Matthew Naylor, the museum’s CEO, met with the finance committee and the board of directors to weigh available options. He and the board decided to keep all staff on the payroll even though the museum would be closed.
“The board was 100 percent behind this approach,” Naylor says.
Some employees could do their work from home, but many, like the people who work in the gift shop, could not. He asked managers to find ways that everyone could contribute to the museum remotely. Many employees are now busy transcribing letters in the museum’s collection that were written by soldiers 100 years ago that have been scanned and can be accessed electronically. Those transcribed letters can now be used by people with impaired sight or who speak other languages using translation software. The staff has transcribed more than 600 pages out of the 10,000 that had been scanned — a project that it had not been able to pursue before.
But even with the museum’s reserves, it has committed to keeping everyone on the payroll only until May 9, at which point it will review its options again.
“The board has a willingness for us to be utilizing some of our resources,” Naylor says. “But we don’t want to make the museum any more vulnerable than is prudent.”
Whatever steps your group takes, its values and mission can shape the decision.
A crisis can be an opportunity for an organization to let its values and mission guide its path forward, even when there are few good options. It’s important to value staff members even as the group is trying to conserve its resources, Klotz says.
“The staff really are the key elements to who and what a group wants to be at the end of all of this,” he says. “These are difficult, if not impossible, choices to make, yet they do have a chance to express their values and their principles.”
Even in the midst of massive layoffs, Goodwill Industries of the Columbia Willamette took steps to lessen the blow for its employees, Barsocchini says. The group delayed layoffs until April 2 so employees would keep their health insurance through the month of April. It also paid the employees’ portion of the insurance premium at a cost of about $1 million to the organization. In addition to paying all accrued sick leave and vacation time, it is also giving each employee an extra $300, a move that will cost roughly $750,000.
“We recognize it’s a really difficult situation,” Barsocchini says. “At the same time, we have to operate with the idea that we will resume business. We have to be in a position where we’re marshaling assets so that we have some ability to open responsibly when the time comes.”
