By Chris Mennel, CPA Nonprofits nationwide are increasingly considering shared workspace arrangements to lower rising facility costs. These arrangements are particularly appealing in areas where nonprofits are being priced out of the real estate market and to those determined to cut operating costs.
Options to choose from
The term “shared space” refers to workspaces shared by small businesses, freelancers, consultants, start-ups and others. Depending on their needs, tenants can pay for short- or long-term access to private offices, conference rooms and common areas. Office equipment and services, such as high-speed Internet; photocopiers, printers and scanners; and coffee and office supplies, are shared among the tenants.
The shared space trend in recent years has led to the development of several options. For example, you could rent space in a dedicated shared workspace facility that also might provide “back-office” services such as HR. Many of these arrangements welcome a variety of businesses, but some cater primarily to nonprofits. For example, Launch Fishers is a shared space where entrepreneurs and innovators collaborate, inspire each other and grow. And they even have a full coffee shop for an afternoon caffeine jolt.
Similarly, some private foundations, with more space than they require, lease out the excess to nonprofits. As tax-exempt organizations, they avoid steep property taxes and pass the savings along to their tenants in the form of reduced rent. The Indianapolis Foundation, an affiliate of Central Indiana Community Foundation, owns the 80,000 square foot English Building in downtown Indianapolis. It leases office space to 13 other charitable organizations for below-market rates, and makes meeting rooms available for nonprofit and public meetings.
Or your nonprofit could join forces with another charity — perhaps one that serves the same population. The two organizations would rent a shared facility and slice the cost in half. You might also rent out unused space to other organizations, generating revenue to offset your rent obligations. Another option: You might be able to find a for-profit business willing to donate space. When pursuing this option, be sure to complete a letter of agreement with explicit details regarding dates, rental specifics, maintenance of common areas, etc
The most obvious benefit of sharing space lies in the cost savings compared with renting or buying your own space. Why, for example, pay annual rent on space that includes a conference room you only use for semiannual board meetings? And organizations of all sizes benefit by efficient use of supplies and equipment, utilities and maintenance expenses.
Flexibility is especially valuable for nonprofits in the early stages of development. Young organizations usually don’t want to commit to long-term leases before they have a handle on how much space they’ll need in the future. Sharing space is a more appealing option than operating out of a founder’s home.
Additional cost sharing opportunities
Workspace isn’t the only thing you can share with other organizations to reap impressive savings. You also can cut your costs by:
Sharing staff. Your organization may, for instance, be too small to justify a full-time IT person — you might not have the need or the budget. But perhaps you and another organization together have sufficient need and funding for such support.
Sharing equipment. You probably have equipment that goes unused or is used below capacity. Think about sharing it with another organization whose needs for such equipment complement yours. (For example, a summer music program could share instruments with a program that operates during the school year.)
Sharing buying power. Consolidate your buying power with that of other nonprofits to obtain lower rates, discounts and possibly even improved service.
It’s not all rainbows and butterflies
Sharing a space may not all be positive though. Organizations need to take a variety of factors into consideration before taking the plunge. Some nonprofits, for example, might not want to share space with “competing” organizations that serve the same population or go after the same funding sources.
You also should think about:
- Legal issues, including lease obligations, compliance requirements and potential liabilities;
- Culture considerations (Would your culture be able to thrive in a shared arrangement? Would it clash with other tenants’ cultures?); and
- Adequacy of technology resources.
You can assess many of these issues by making site visits, both scheduled (to get the sales pitch) and unscheduled (to get a more realistic lay of the land).
Is it right for you?
As nonprofit budgets get tighter and come under more scrutiny, cutting your occupancy-related costs may provide some peace of mind and pave the way to sustainability.
Alerding CPA Group can help you determine whether moving your operations to a shared space is a solid financial decision. Call us at 317-569-4181 or www.alerdingcpagroup.com.
This post was written by:
Christopher Mennel, CPA
Senior Audit Manager
Chris oversees audit and accounting services, not-for-profit and consulting services. Chris’ specialties include manufacturing, distribution/wholesale, retail, health and welfare, service and civic organizations. Chris also prepares financial statement projections and other financial analyses.
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