Many organizations experience ‘feast and famine’ cycles. Here are three options for when expenses are mainly fixed and the total of expected expenses exceed your budgeted/expected revenue. After you scrub expenses of the “nice-to-haves”, your options are to:
Budget at a loss
If you budget an operating loss, then always create action plans to either seek financing, sell assets or cut expenses to get through a temporary loss period. Make a plan concerning the reasonable timing and effect of any proposed changes. After your Board or other Executive group selects a cost reduction plan, then your budget can be modified to reflect those changes.
Cut fixed expense, even headcount reduction
First, ask program directors for suggestions on reducing their expenses. Buy in for the plan is important for success. If a layoff is your only option, then program managers need to identify where to cut and how to redistribute workload. Be careful to create a layoff criteria that won’t leave you open to discrimination suits.
Cut benefits or other “essentials” beyond “the bare bone”
Extreme cuts are a last resort effort, because cutting beyond “the bare bone” can cause you to lose highly trained and qualified staff. However, drastic measures may be necessary to continue conducting business.
Salmon Sims Thomas has extensive experience in working with nonprofit organizations. Please contact Becky DaVee, CPA, about possible solutions if you see your organization heading into an operating loss position.