Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

September 29, 2008

Nonprofits must gear for tough economy

Nonprofits stressing over the sinking economy and capital markets should focus on the big picture and work to make sure their finances, operations and supporters are secure, says an expert on nonprofit finance.

“At the end of the day, the biggest risk is to the people we serve,” says Clara Miller, founder and CEO of the Nonprofit Finance Fund, a New York City-based nonprofit that provides financial and advisory services to nonprofits and their funders.

Nonprofits should take a hard look at their finances to be sure their bank accounts are safe and their cash is accessible, and they also should assess their revenue streams, she says.

While the looming recession may cause giving by individual donors to dip, for example, and while causes like the arts that depend on discretionary giving could suffer a bigger decline than social-services, she says, individual giving historically has not declined as much during recessions as some nonprofits may fear.

Government funding could decline, Miller says, and while some nonprofits actually could see an increase in government support to cover rising demand for services, the reimbursement rate for services nonprofits provide could decline.

So while a nonprofit that makes home-care visits might receive more government dollars to cover more visits, for example, it might receive fewer cents per dollar on the cost of each visit.

The expected tightening in government funding for nonprofits likely will increase the need for charitable giving to fill the gap, “and that’s a tough place to be,” Miller says.

So nonprofits should move carefully and not look for quick fixes.

“It’s important not to panic and over-diversify lines of business,” she says. “This is a time to be watchful and keep the powder dry.”

Uncertainty about the economy represents an opportunity for nonprofits to “reach out and communicate with the board, staff and funders,” Miller says. “That will make everybody feel better. Information is important.”

Nonprofits “do have a tendency to grit our teeth and make it through bad times,” she says. “That’s a strength. But it can be a weakness if in fact it’s so bad we need to be talking to one another and making contingency plans.”

And in working with foundations, which often make grants based on a “two-year rolling average” and “often, especially in bad times, maintain their giving levels,” she says, “conversation is very important, reaching out is very important.”

Still, nonprofits should recognize that “foundations are not going to fill the breach lost by government cutbacks,” she says.

“If you get most of your revenue from fundraising from government sources, it’s unrealistic to expect philanthropy to replace those funds,” she says. “If government is looking at very bad economic times and cutbacks in direct services, that’s where we are going to feel some pain.”

And instead of working on strategic plans for the long-term, nonprofits should focus on contingency planning that looks at specific financial scenarios, Miller says.

Ultimately, surviving and thriving in tough economic times requires leadership, she says.

“We want to be here for people who need us, so part of what we’re trying to do is live to fight another day,” she says. “This is about making sure we preserve our programs and services for the people who absolutely need them.”


  • At 8:06 AM, Anonymous Anonymous said…

    Clara Miller is correct in saying now is the time for nonprofits to reach out. All stakeholders need to hear the mission expressed in a passionate voice. Communicating the vision will draw the donor’s attention to the financial needs and how they can play a role. If nonprofits expect less, that is certainly what they will get.

    Too many nonprofits live and breathe on government funding. This can lead to an entitlement mentality. When government funds diminish or dry up entirely, nonprofits may suffer or even close their doors.

    While Miller suggests contingency planning, those nonprofits which have completed strategic planning will weather the tough economy more easily. Measuring the organization’s current status and making adjustments is part of strategic planning.

    However, focusing on the just the immediate financial crunch leads to bad habits that are hard to break. Nonprofits fall prey to a “bang on doors for bucks” approach and never move forward.

    A better approach is to create a strategic plan, communicate the vision and mission, and develop donor relations. Get to know the donors and stay active with them. Learn about their passion for the mission. They may wish to participate as a volunteer in addition to offering financial support.

    Donor development in this fashion not only shores up fundraising, but can also lead to major gifts and fund development. The impact of these major gifts is the building of an endowment that takes the sting out of tough economic times.


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