The Wrap Podcast | Episode 059: Balancing Mission and Funding in the Nonprofit Industry | Warren Averett

Commentators (0:03): Hey, I’m Paul Perry. I’m Kim Hartsock, and you’re listening to The Wrap, a Warren Averett podcast for businesses designed to help you access vital business information and trends when you need it. So, you can listen, learn and then get on with your day. Now, let’s get down to business.

Kim Hartsock (0:20): Glad to be back for another episode of The Wrap. Today, we are talking all things nonprofit. So, I’m looking forward to this conversation, and we have a couple of returning guests.

Paul Perry (0:30): For those that know… we are referencing another old episode. So, if you remember back in Episode 16, we talked a lot about trying to find the best board of directors. It was a great episode, and we were in person for that podcast down in Tampa. Michelle is back with us today as well as Jennifer Williams. Ladies, welcome to the podcast.

Jennifer Williams (0:53): Good afternoon, Paul and Kim.

Michelle Sanchez (0:54): Thank you. Paul and Kim, I’m happy to be back. I am Michelle Sanchez, as Paul said. I’m a Member here in our Tampa office of the firm, and my specialty is nonprofits. That’s a wide range of things within that nonprofit space. But I really love just being a business advisor and helping and supporting our clients as they further their mission in the community.

Paul Perry (1:18): We also have Jennifer Williams with us.

Jennifer Williams (1:21): Yes, good afternoon. Jennifer Williams, I’m joining you from our Atlanta office. I’ve spent my career working with nonprofits, and I spend a lot of time working on Single Audits in the federal government award space as well. So happy to join everyone this afternoon.

Kim Hartsock (1:37): So, what are you seeing in terms of the challenges that the nonprofit leaders are facing right now? Maybe some of them are unique to nonprofits. Maybe you’re seeing things that other businesses are seeing as well, but fill us in on what’s going on right now in the industry?

Michelle Sanchez (1:54): I think I’ll kick it off, and then pass it to Jen. I think a lot of the things that—like you mentioned—we’re seeing in nonprofit space are things that a lot of companies are facing right now. One thing that we’re hearing consistently is the labor challenges and the war on talent, which has always been somewhat of an issue for nonprofits. But I think in the last couple of years, that’s really been amplified. Jennifer and I spend a lot of time talking about that. There’s such a war for that talent right now. In the past, we used to find that people had such heart and passion for working with nonprofits that a little bit of that salary gap really didn’t make a difference. You know, they were committed to working and doing that. But as you know, wages continue to rise, and that gap gets bigger and bigger. It’s harder for a lot of those folks to justify staying. So, we’re seeing in our market a lot of turnover, and nonprofits are just having a tough time recruiting and retaining those positions.

Jennifer Williams (1:54): Yeah. I think, Michelle, we talked about, you know, it’s turnover at times where, in the nonprofit industry, a lot of the talent stays for many, many years, because they’re just really dedicated to the mission. You’re seeing more turnover than normal in those positions and, as we all know, having to retrain and find employees. I think you had a client tell you and I’ve had the same, “You know, this is the best that I could hire for my budget.” But when you’re having to replace them and train them at times, you need to start considering, do you need to be paying more? You know, how to approach that or how to get a little creative there.

Paul Perry (3:43): Yeah. Can you talk a little bit about budgets? I can imagine funding and sources of funding is one of the other challenges you see, and can talk to what you are seeing in your nonprofits that you talk to on a daily basis? What are they doing? Are they having to get creative? How do they solve that funding issue?

Michelle Sanchez (4:04): If we only had the one silver bullet for that, Paul, but that’s a pretty complex issue. I think a lot of nonprofits got a little bit reliant on money coming in through the pandemic. Not only was the need for services higher than ever before, but we’re seeing some of those special circumstances funding your PPP loans, your ERTC credits, which is a whole other issue we can talk about. But you know, all the CARES Act funding and the PRF funding. For a couple years, nonprofits were just getting money from a lot of different places. Unfortunately, some of those have been a little bit reliant on that funding. So, now that we’re coming out of the pandemic and that funding is going away, they’re having to really look at expanding and diversifying—but at the same time staying true to their mission—to try to replace some of those funding sources because the need didn’t go away, but the funding dollars are starting to go away.

Jennifer Williams (5:05): I would agree. As far as getting creative, I think that looking at technology solutions is a big place where our nonprofits are having to look, you know, how you used to give has changed. Just being able to give through an app or in other ways is becoming important, but with technology solutions is also coming cost, right? So, there’s a cost and investing in that technology, and that isn’t something that necessarily was anticipated. So, it’s a balance and figuring out how much technology to invest in because giving patterns have changed.

Kim Hartsock (5:45): Michelle, you alluded to this, but you know, the CARES Act and the reporting that goes along with that. It feels like the nonprofits over the past years have had more and more and more in terms of compliance. So how are nonprofits dealing with that?

Michelle Sanchez (6:03): Yeah, that’s a really good point. Even for-profit companies that got federal funding that were never used to getting it. All of a sudden, they found themselves in this situation where they’ve got to report, file and do all these compliance requirements. The risk is that we go back to the turnover, the changes in all this funding and compliance. You have people in those positions that really aren’t as experienced as you want them to be to handle that reporting and compliance. So, it is definitely a risk to make sure that you’re doing everything. I have some clients in the medical and healthcare space that got money from PRF and from the CARES Act without even asking for it. So, it’s like, “Okay, we have the money. Now we have to figure out how to spend it.” They needed to be really careful about what they’re spending it on and making sure that they are hitting those compliance requirements. For your seasoned nonprofits that are used to having those Single Audits and compliance reporting, this was not as big of a deal. You know, as sort of the ones that were under the radar before that, now have found themselves in that position.

Paul Perry (7:14): You mentioned the ERTC, Michelle, I mean, that’s what everybody’s hearing lately. How’s that impacting nonprofits specifically, or is it pretty much the same as all other industries?

Michelle Sanchez (7:28): I’ve seen it similar in other industries. You know that saying that it’s too good to be true? Sometimes it is with the ERTC credits. Now, there are a lot of companies that qualify, either through the loss of revenues or the government-mandated shutdowns. But, as you all know, there’s a lot of firms out there pushing these ERTC credits, because they’re getting an upfront contingent fee and saying, “Hey, we can get you a $4 million ERTC credit.” They’re not really taking the time to dig into the details of does that government shutdown really apply to the rules? I think, when you’re looking at having a lack of funding, if someone comes to you and says, “Hey, we can qualify you, and you can get $4 million,” most companies are going to say, “Okay, yeah, let’s do it.”

I think they just need to be careful. Because if you’re not certain, if you don’t have your documentation and haven’t vetted that thoroughly, that’s a liability. You may have to pay that money back. Even if you get the money, it’s open to a seven-year period of being audited. If you have to pay it back, that’s interest and penalties. The IRS has put notices out there to tell people to be careful and on the lookout for these schemes. Jennifer, are you seeing the same in your client base?

Jennifer Williams (8:49): Yeah, I actually got the first email from a client last night where they hired someone else to do the ERTC work, and they were aggressively pursued. Then, the IRS agent actually showed up to ask some questions. So, I think that it’s definitely beginning.

Michelle Sanchez (9:08): Yeah. I think personally that if I’m getting calls on my personal cell phone, you know, five times a week that I qualify for an ERTC credit, that should give people a little bit of pause and not just blindly follow these companies that are out there doing it.

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Kim Hartsock (9:38): We’ve talked a lot about the challenges that are facing the industry. What would your advice be to the leaders of these nonprofits? What should they be focused on? What should they be really spending their time on?

Michelle Sanchez (9:51): One thing, Kim, is strategy and taking a step back. You know, we all took an internal look at our own lives during the pandemic. You know, how can we change? How can we do things better? How can we do things different? I think, business for-profit and nonprofits are no different. It’s a good time to really look at what you’re doing. Look at what you’re doing well and what’s impactful to your mission. Looking at those four quadrants where you have high impact, high mission…or high profit. Or, the opposite, low profit, low impact. Focus on the things that you do well and that are aligned with your mission. When you have to look at expenses, you really need to be focusing your costs and expenses on things that are going to be profitable and that are in alignment with your mission.

So, it’s a really good time to step back, do a reset and look at your overall strategy. Make that strategy and planning part of your annual process or your annual strategic meetings, so that you’re always moving ahead. It’s easy to chase the dollars. You know, a lot of times, you’ll see nonprofits that may make a lot of money doing something that’s totally not aligned with their mission. People are looking at that. Donors and funders, they want to make sure that you’re walking the walk and talking the talk. So, make sure you’re focusing on what aligns with your mission. If there’s something that’s really high impact but not very profitable, figure out how you can make that profitable. If you can’t, consider: do we need to keep doing this? I just think it’s a good time in this environment to take a step back and reassess what you’re doing and where you’re going.

Jennifer Williams (11:37): I think a lot of nonprofits are really, as they should be, focused on ratios. They’re focused on, “How much am I spending of the dollar on programming versus how much am I spending on this management in general bucket?” and looking at the ratios. But I think that, as part of that process is really looking at how do we align our mission? Where do we spend our dollars? Really using and harnessing that technology to be able to tell your story, it’s told in a way other than ratios. Really using technology and the way to reach people, which is different now, to tell your story.

Michelle Sanchez (12:17): Just to piggyback off of Jennifer, just telling your story? That’s really important. That’s what’s going to reach funders and donors today. A lot of nonprofits are going to use some type of impact report, almost similar to what for-profit companies might be thinking about. We’ve all heard of ESG. That governance, who you are, your mission and what you do. That’s a good tool for nonprofits to start thinking about. Maybe not a full ESG report, but looking at an impact report. “How do I tell the story of what we do? What really matters?” You know, it’s not about this ratio, but… “How many meals are we serving? How many people are we serving?” That’s what people want to know. That’s what people want to give to, they want to give to the folks that are following their mission in those footsteps.

Paul Perry (13:08): Here on The Wrap, we’d like to wrap it up in 60 seconds or less. What’s the one thing you want our listeners to think about and remember, from this discussion, as it relates to nonprofit industries, their challenges and their opportunities to overcome in today’s world?

Michelle Sanchez (13:25): I would actually say two things. One we touched on is really your mindset. Nonprofit is not no profit, it’s a task of making sure you’re thinking about it like a business, but still staying true to your mission, and I think that is key. Then, also just stepping back and focusing on your mission. You know, telling your story and getting your story out there about what you do and who you are. Don’t be afraid to reassess that. In challenging times, you have to sometimes make some tough decisions. And like I said, it’s a great time to reset.

Jennifer Williams (14:02): Yeah, I would agree. It’s hard to beat that, Michelle. But I go back to just taking a step back and realizing that things have changed. That, what was done a few years ago is different now. Really just looking at the technology solutions and people solutions and changing your mindset.

Kim Hartsock (14:27): Well, thank you both for joining us today. It was great to have you on and great to see you. Paul and I will look forward to the next episode. See our listeners then.

Commentators (14:41): And that’s a wrap. If you’re enjoying the podcast, please leave a review on your streaming platform. To check out more episodes, subscribe to the podcast series or make a suggestion of other topics you want to hear, visit us at https://warrenaverett.com/thewrap.