The Year of the Comeback: What COVID-19 Means for Nonprofits in 2021
For nonprofit organizations, recent shifts from the physical space into digital have brought a serious blow to in-person events like galas and fundraisers, board meetings, lunches with donors, and even many revenue-generating program activities. While some sectors of charitable giving have remained stable, nearly 64% of nonprofit executives report having canceled or postponed events as a result of the pandemic – often incurring additional losses due to cancellation fees, ticket refunds and more. At the same time, one of the key functions of nonprofits as sources of networking, support and community makes them more valuable than ever to those they serve in a landscape where disconnection is ever-present.
While this opens up opportunities for nonprofits to recover some of their loss by emphasizing their value to the community, it also adds additional pressure to those already struggling financially. They must offer value in innovative ways and continue to provide resources, while balancing the in-person/virtual hybrid environment 2021 demands.
Challenges Faced by Nonprofits
For years, nonprofits have consulted with their advisers and accountants on issues like donor retention, relevancy, and ancillary revenue; today, the effects of the pandemic have exaggerated some of those concerns and completely flipped the script on others:
- Cash Flow: Aside from large donor and corporate commitments to certain organizations, fundraisers are the highest source of revenue for many charitable organizations, and the largest source of charitable donations comes from individuals. However, without in-person events and fundraisers, individual giving is down by 53%. About 83% of nonprofit organizations reported a projected revenue loss of at least one-quarter of their total budgets in 2020, though some were able to garner financial support like Paycheck Protection Program (PPP) Loan funding as part of the CAREs Act.
- Cybersecurity: When the onset of the pandemic swept critical revenue streams out from under them nearly overnight, nonprofit organizations had little choice but to try to take as many events virtual as possible. With this switch came new and heightened security concerns. Privacy has always been a paramount concern. Now, in a virtual setting, with logins from multiple locations and conveying and submitting information through digital channels, ensuring the security of everyone involved has become an even greater need. With additional cybersecurity requirements come additional costs— creating a need for even more funding.
- Relationship Management: Simply converting events from one format to another isn’t enough. When events go virtual, it’s more than the physical connection that is lost. There is also a loss of opportunity: no chance for water-cooler small talk, no chit-chat over dinner, no truly natural moments for good old-fashioned getting to know one another. For nonprofits, this has been a challenge to ensure virtual events are still providing value for constituents and maintaining close relationships when those in-person moments have been removed from the equation. Fundraising events have had to be canceled, quelling unique opportunities to network and raise awareness. Coupled with an increase in the demand for services nonprofits offer, it has been a challenge to maintain a steady revenue stream and connections in the communities they serve.
Now, the unique positioning of nonprofits brings both challenges and opportunities. They have the chance to play a key role in providing the support that communities need – but it will require a strategic approach.
Considerations Moving Forward in 2021
With vaccines being distributed and a positive global economic forecast as the U.S. heads toward economic reopening, businesses and organizations can approach this year with a more hopeful eye, as market forces give them a chance to breathe after months of strategic pivoting and recurring uncertainty. For nonprofits, this means an opportunity to rebalance their sheets and consult with their advisers and CPAs on reducing spending and recovering lost revenue. It also means time to take a step back and proactively plan for what’s ahead:
- New Funding Opportunities: In late December 2020, Congress voted on another round of PPP funding and expansion of the Employee Retention Tax Credit (ERTC). These additional funds open new opportunities for nonprofits to balance some of the revenue loss experienced during lockdowns. Organizations should discuss funding opportunities with their accountants, who are already well-versed in the PPP Loan Program and the ERTC for their charitable nonprofit clients and can help them apply for this funding. Nonprofits should also consult with their accountants to better understand the updates in the tax laws that may impact their donors - for example, the lifting of the Adjusted Gross Income (AGI) cap on charitable contributions and the “above-the-line” charitable deduction available to individuals in 2020 and 2021.
- Hybrid Models: Nonprofits can expect more fully virtual meetings and fundraisers, along with hybrid online/in-person events. They need to be careful not to silo constituents and must be creative in allowing opportunities to promote programs across audiences, no matter the attendance format. Creating an integrated experience will be key to maximizing value.
- Increased Spend: Integrated programming will also give nonprofits an opportunity to marry revenue streams, which will be crucial as they continue to take on an increased tech spend for cybersecurity, virtual communication tools, and more. Organizations should consult with their financial advisers on ways to curb these added expenses with strategies like increased event sponsorship opportunities and applicable loan and credit programs.
- Regulatory Issues: Organizations also need to consider ongoing regulatory and compliance matters – especially organizations who receive certain federal funds and are subject to Uniform Administrative Requirements. New programs from the federal government or additional COVID-related funding through existing grants may have more specific compliance and reporting requirements. For example, while PPP Loans (and the grant revenue resulting from the related loan forgiveness) are not included in the total calculation of federal expenditures for single-audit purposes, many other CAREs Act funding streams are included. Organizations should consider careful consultation with their CPAs and attorneys to mitigate any overlooked risks in these and other areas.
- Intentional Events: As in-person events begin to make a comeback, nonprofits should thoughtfully consider how they can optimize these events to create extra time and space for small relationship-building moments between attendees. After so much time spent social distancing, constituents will be placing more value on these opportunities for personal connection than ever.
- Relationship Nurturing: Working with other professional advisors to relay information and resources to their audience will help nonprofits emphasize their value and nurture relationships. Organizations should also consider new giving strategies to attract new prospects.
- Privacy Considerations: Continued virtual meetings and events will mean continued increased privacy considerations. Nonprofits must review and update their privacy standards to ensure the protection of sensitive data when information is being shared virtually.
Despite the challenges they have faced in an increasingly virtual landscape, nonprofits are more important now than ever. With an increase in demand for the services they provide, they must be able to act as leaders in the community while simultaneously thinking of innovative ways to continue to do so. After months of distance and uncertainty, now is the critical comeback moment for these organizations—leverage the opportunity to optimize and emphasize the value that only they can provide and amplify that message to a greater target audience.
Jeanne M. Dee, CPA/CGMA, is the Audit and Assurance practice leader for the Nonprofit Group at Anders CPAs + Advisors, where she specializes in audits of financial statements for nonprofit organizations, government entities, employee benefit plans, and closely-held businesses. A member of the firm’s CARES Act Research and Response Team, she advises nonprofits on the latest legislation on COVID-19 relief, including the Paycheck Protection Program. Jeanne enjoys working with business owners, executive directors and board members to help them better understand the financial reporting process. As a leader on standards and regulations of the accountancy profession at the local, state and national level, Jeanne is knowledgeable and skilled in researching accounting principles and new or changing audit standards and is a frequent author and speaker on these topics.