Whenever there is a deficit, we look at the budget for places to cut – less paper, less copies, less postage. The sad result is that you can’t mail anything for the next two months but the agency still fails. What can leaders do?
Non Profit Costs Are Labor Costs – Non profits all share a common feature – Most of their costs are labor costs. Non Profit budgets are made up of various human services. Those are provided by people that we pay. Non Profits are not selling postage stamps. You can cut the postage budget 100% and it still won’t solve a cash problem. 70% or more of a typical non profit budget is labor costs.
You won’t like this next part, but try one or more cost cuttings from this list.
- Replace Low Quality Staff – Find staff who have been at the agency for a long time and have become mean and inflexible. They also tend to make better wages and benefits. Everyone is scared of them because they seem irreplaceable. Replace them. You will help staff morale and cut costs.
In one situation, the staff member was traded to four different managers because she was mean, was paid more than others, and played favorites. She informed one supervisor that she couldn’t be fired. The director felt like a lion tamer trying to get the job done. The result – the staff member left, income statement improved, and the program never felt the loss.
- Review Job Descriptions – Over time, job descriptions don’t change but regulations change, clients change, and technology changes. Carefully review jobs to see if you need to make significant changes and cut labor costs.
When you look around, everyone is busy. Ask each person for a list of their activities. Your goal is to find people who are being paid at a high level for a simple job that can be done at a lower cost.
A program director should not start stuffing envelopes after they have extra hours when their program funding and clients are cut. The task is needed, but not at that labor pay rate. Perhaps that director can add on another program to direct and save the cost of a 2nd position.
For example, our agency built an Excel report weekly for the bank deposit. Changing the accounting system removed that step which saved 4 hours of labor per week and audit costs at the end of the year. Sadly, this was not apparent – and the accountant started to stuff and address invoice envelopes to fill the time.
- Capture Lost Minutes – Are you paying for 4 minutes for a staff who arrives 2 minutes late every day and also leaves two minutes early? If you buy a time clock with biometrics, and pay only for the actual time for 60 staff who cut those corners, – its $1,000 a month that you can cut from labor costs.
- Leverage Technology – Finally, are you using technology to reduce labor costs? Banks are using ATMs instead of tellers. Grocery stores are converting to self checkout. Non profits have two areas where technology helps.
Use technology on agency activities not related to your direct program services. Start bill paying online with controls, start payroll and tax reporting, human resource documents, etc. The annual cost of the change is cheaper than the annual cost of a staff member to perform these jobs.
Also, look for ways to assist appropriate direct program services with technology. In one program, each staff member was given an ipad. The observations were made and stored directly so that no clerk was involved to maintain paper files. The new system also allowed easy review of previous reports. One staff position was cut from the budget.
The reason we don’t cut costs is that it’s easier to take $100 out of the postage budget than to release someone from the staff. Leading an agency has difficult moments. We got into these positions to help the group of people within our mission with special services that will change their lives. When the budget to do that program is in danger, it’s the top and difficult priority of leadership to protect them.
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