Wednesday, February 13, 2008
The Nonprofit Finance Fund today released data and recommendations advising nonprofits on how to survive during periods of recession. The data were obtained for the years 2001-2005. NFF's five recommendations are listed below. For charts summarizing data from the study, see here.
FIVE RECOMMENDATIONS FOR NONPROFITS IN A RECESSION
1. Nonprofits heading into recession need to avoid “strong, silent behavior” and sustained spending, which has been a hallmark of the industry for more than a decade, and continues to make nonprofits weaker, not stronger. Miller explained: “We are entering a period of financial crisis, and we can’t afford to ‘fake it until we make it.’ This heroic type of behavior does no one any good in the long run. Nonprofits need to share worries with boards and funders, and enlist their support in getting ready for a possible recession. Organizations need to try to get by on decreased revenue and programmatic spending for a year or two in light of new financial indicators, before moving forward with challenging expenses.”
2. Nonprofits should engage with board members and funders in contingency planning on what is likely to happen to clients and funders during a recession. Clara Miller said: “The end clients are especially important, and face the greatest risk: many of the populations served by nonprofits are fragile, needy people, whose need increases in times of financial stress. The goal of surviving a recession or economic recession is not to stay afloat for the sake of staying in business, but rather to make sure you’re around to keep serving the public, particularly in times of increased demand for services. It’s important to get board members and funders to go public with that message -- that the organization’s survival is important because of the clients it serves.”
3. Nonprofits should avoid large investments in fixed assets and infrastructure (i.e., a building purchase, new hires or expansion of services), and if change (growth or retrenchment) is likely, then nonprofits need to work with funders and board to build a cushion to allow flexibility and course corrections. Miller explained: “As economist Peter Bernstein put it, ’Risk means not having cash when you need it.’ And that is particularly true for nonprofits, which often have liquidity problems in the best of times. Liquidity becomes even more of an issue during a downturn, when there is a temptation to maintain or increase services, and hence expenses, even if revenue is declining.”
4. Nonprofits need to get a firm handle now on their revenue patterns. Clara Miller said: “Organizations can examine revenue cycles to see if they're contra-economy or not. In some cases, the revenues of nonprofits actually rise during a recession. If that's true, nonprofits can build growth funding to allow rapid expansion to meet needs. If the opposite is true, nonprofits can take actions in step with cushion-developing approaches.”
5. If they offer services (e.g., job retraining, food kitchens and housing services) that will lessen the negative impact of an economic downturn, nonprofits should approach government funders more aggressively. Clara Miller noted: “Nonprofits should propose revenue-neutral changes if the government can assist it with expansion during a recession or improving its practice within the context its mission. Nonprofits can also band together around quality-adequate pricing, and consider shared platform investigations, using already-scaled ones available.”