How Are Nonprofits Responding to the Recession?

by David Little and Terry Fraser

We polled nearly two dozen of our nonprofit clients to find out how the weakened economy is affecting them. Through an informal email survey, we got a concrete sense of how these nonprofits were adjusting to a difficult economic climate. Our respondents included social service agencies, religious organizations, and associations from the Midwest to the East Coast. Several common themes emerged from their responses.

Individual contributions are lagging—The average gift per contributor has decreased. Fundraising efforts will need to reach out to more individuals in order to maintain past funding levels.

Event and conference registrations are delayed, especially those that require significant travel—The good news is that attendees are still eventually registering or showing up at the last minute.

Accounts receivable are more difficult to collect, and aging receivables are increasing—These trends are slowing cash flow and reducing organizational liquidity. 

Down payments for facility expansions are increasing—Lending institutions are attempting to reduce risk, and this is affecting the expense side of organizational budgets.

Looking into the future, many nonprofits believe that 2010 will be even more difficult than 2009 as foundations adjust their distributions to their 2008 losses, and government funders address budget deficits.

Smart responses by organizations

In general, it is beneficial to plan for the worst (while hoping for the best) and to be proactive rather than reactive. Several organizations developed similar strategies to cope with the economic downturn.

Delayed growth—For many, it has become necessary to hold off on planned growth. Temporarily postponing capital campaigns makes sense.

Cost containment—Organizations are increasingly mindful of costs for both internal and external events. Some are making local events a priority; others are encouraging employees to use Web-based learning or networking opportunities. A more difficult decision might be to eliminate trainings or conferences if registration is low. This should be done only after considering contracts and possible cancellation fees. When negotiating contracts, always include options that allow your organization the flexibility to delay, shorten, or move an event to another location if registrations are lagging.

Organizations are also finding opportunities to contain costs in advertising and fundraising efforts. Moving direct mail or advertising campaigns online can produce significant savings. Some groups are publishing their annual reports on their Web sites. Both approaches reduce paper and printing expenses.

One of the largest components of any budget is labor, and it must be seriously considered when exploring cost containment. Labor costs can be reduced through payroll freezes, reduced hours, bonus reductions, deliberate vacancies, and layoffs.

Contingency budgeting—Regardless of the economic climate, organizations should always be contingency budgeting. Developing budget scenarios that project “good,” “bad,” and “worse” situations will help guide your decisions no matter which category your organization falls into. These budgets should include trigger points for implementing cutbacks based on specific benchmarks. (For example, if program referrals decline 15 percent, the organization will eliminate a position.)

Organizations and their boards are also monitoring budget-to-actual results more frequently and maintaining up-to-date cash flow projections so they can decisively take action when needed.

Strategic adjustments—Finally, organizations are making strategic changes, beginning with a review of all projects and followed by cuts to projects that do not directly support the mission or add value for clients. A simple SWOT (strength, weakness, opportunity, and threat) analysis is a powerful tool in making these decisions.

Opportunities

Although change is stressful, new opportunities are emerging as well. As counterintuitive as it may seem, now may be the time to make radical, transformational changes, not just transactional adjustments. Some organizations are discussing entirely new ways of doing business.

New paradigms—This is a grand opportunity to rethink all of our assumptions. All the rules are changing, so invest some energy in considering new programs, approaches, and management structures.

Volunteer resources—Organizations have greater volunteer resources available through unemployed or retired community members who are willing to contribute their skills on boards and committees.

Increased need for services—Some programs are growing in response to current community needs. For example, dislocated worker programs are more important now than they have been since the 1980s.

New funding sources—The tax stimulus legislation includes new funding opportunities. For example, it allocates $250 million to energy retrofit investments in HUD-assisted housing.

No matter how your organization changes or how many new opportunities it pursues, remember that there will be a time lag before you see the full impact on your operation. This economic crisis is far reaching, and the nonprofit environment is changing. But the universal theme for the future, no matter who you are or where you work, is simple—adapt.