What to consider before co-locating with other agencies

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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. In the Pikes Peak region, the “health care” desert of services is in the 80916/10 area.

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.

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.

When two or more nonprofits serve the same population, they may rent a shared facility and slice the cost in half. You may also rent out unused space to other organizations, generating revenue to offset your rent obligations.

Potential perks

The most obvious benefit of sharing space lies in potential cost savings. Why, for example, pay annual rent on space that includes a conference room you only use for semiannual board meetings? 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 or entry into a new market. Organizations usually do not want to commit to long-term leases before they have a handle on how much space they will need in the future.

Additional cost sharing opportunities

Workspace is not the only expense 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.

Not all rainbows and unicorns

Shared space is not all rainbows and unicorns, though. Organizations need to take a variety of factors into consideration before taking the plunge. Some nonprofits, for example, may not want to share space with “competing” organizations that serve the same population or pursue similar funding sources.

You also should think about:

  • Legal issues, including lease obligations, compliance requirements and potential liabilities,
  • Culture considerations (Will your culture be able to thrive in a shared arrangement? Will it clash with other tenants’ cultures?).
  • 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 space-related costs may provide some peace of mind and pave the way to sustainability. Your CPA can help you determine whether moving your operations to shared space is a solid financial decision.

 

SKR+CO Expert
Ellen Fisher, CPA, Audit Partner
Ellen has been in public accounting since 1997. She specializes in employee benefit plans, real estate and construction, financial institutions, nonprofits and small to mid-size businesses.