Cost Sharing Collaboration: How Not-For-Profits Work Together

Economic uncertainty and competition for contributions force not-for-profit organizations to look for ways to reduce costs without reducing the program services offered. One way to achieve this goal is with collaboration through cost sharing with other not-for-profit organizations

What is collaboration? 

Collaboration is working together with the purpose of meeting a common goal. All not-for-profit organizations have a common goal – to effectively achieve their mission. Not-for-profit organizations are constantly trying to do more with less and must think outside the box for opportunities to control costs.

There are many ways not-for-profit organizations can collaborate with each other for cost sharing.   Examples of potential collaboration and cost sharing opportunities include sharing:

  • Office space/utilities/telephones
  • Office equipment and supplies
  • Information technology (IT) staff
  • Administrative activities
  • Grant writing

What should a not-for-profit organization look for?

When looking to collaborate with another organization, not-for-profits should take many things into consideration.  Does the organization:

  • Have a similar mission?
  • Have a mission that compliments your mission?
  • Service the same clients but offer different services?
  • Serve in the same geographic area?

What does collaboration look like?

The following is an example of collaboration between four not-for-profit agencies that serve the same populations:

  • Organization A’s mission is to move homeless individuals permanently out of homelessness.  
  • Organization B’s mission is to provide transitional housing for homeless individuals.
  • Organization C’s mission is to provide winter shelter and a one-stop outreach program for the homeless.  
  • Organization D’s mission is to provide transitional housing for homeless individuals and families, and permanent housing for disabled homeless people.  

All four of these organizations were in the same geographic area and collaborated to raise financial support from local foundations to match federal grant funds.  In this example, local foundations welcomed the collaborative grant applications and the organizations were able to share expenses related to a contracted grant development person and a management information system.  The organizations worked closely together and were familiar with the services of the other organizations. Clients were referred to the appropriate organization within the group based on specific needs and expertise.  The cost savings was substantial since each organization did not invest additional resources individually instead sharing a smaller amount of additional costs between the four organizations.

What should you consider before collaborating?

There are many things to consider before collaborating with another organization. For the arrangement to be successful, each organization must benefit. To determine if the arrangement would be mutually beneficial, consider the following:  

  • Due diligence - Research the organization you are considering working with to make sure the management style and reputation is appropriate for a collaborative arrangement.  
  • Written agreement – Always put the details in writing including an exit plan for both parties.
  • Managing the relationship – Each organization should have representation when decisions are needed.  There should also be a tracking system to account for shared resources.
  • Tax considerations – If the collaboration results in income from activities that are not included in the organization’s tax-exempt purpose and mission, consider the effects of unrelated business income tax (UBIT).

Collaboration through cost sharing may not be a viable solution for all organizations but it should be considered. Before you invest in new resources, there may be another answer.  If you can find another organization to share costs and accomplish your mission, it may be beneficial to consider a collaborative relationship.

ABOUT THE AUTHORS

Mark Nicolas
Managing Partner, Non-profit, Education & Government
Mark.Nicolas@dhg.com
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