In(c)ights | Preparing for the ‘Perfect Storm’
The global economic slump that followed the September 11 attacks caused 40 percent of the 6,500 nonprofits surveyed by the Nonprofit Finance Fund to run operating deficits for three straight years. With many observers believing the United States is on the verge of a recession, the Nonprofit Finance Fund held a conference call with reporters this morning to offer five recommendations for the sector in hopes of avoiding similar troubles this time around.
“We need to be ready for the widespread effects of an economic downturn,” warned NFF CEO Clara Miller. “We need to be asking what can we all do to prepare and what standard, time-honored behavior might actually be counterproductive in such a situation.”
With that in mind, Miller called on noprofits to:
- Avoid “strong, silent behavior.” “The tendency to carry the mission forward with or without adequate resources has been a hallmark of the industry, but it tends to make us weaker, not stronger,” Miller said. “We are entering a period of financial crisis, and we can’t afford to ‘fake it till we make it.’”
- Engage in contingency planning along with board members and funders. “Clients face the greatest risks,” said Miller. “Many of the populations served by nonprofits are really vulnerable. The goal of surviving a recession is not to stay afloat for the sake of staying in business, but to make sure you’re around to keep serving the public.”
- Avoid large investments in fixes assets and infrastructure. Things that fix expenses for the long term — new hires, new building purchases, service expansion — will make it that much harder to serve when belts must be tightened.
- Get a handle on their revenue patterns. For the few nonprofits that experience increased revenues during recessions, it’s a chance to use the new funding to meet their heavier load; for those whose revenues decrease, a cash cushion can help stave off dire consequences.
- Approach government funders assertively now. Some nonprofits offer services that lessen the impact of a recession; organizations that focus on such things as job retraining, housing, and food provision should be aggressive in seeking increased funding from the government.
Supplementing Miller’s recommendations were comments from William J. Eberwein, the president and founder of Children’s Choice, who drew on his organization’s 26-year history to urge the government to allow nonprofits to keep funding they don’t use, much as it does with private-sector firms with which it contracts.
“We perceive we have the perfect storm coming, and we all need to prepare effectively for that storm,” Eberwein said. “If our organization is starved for funding while increases for service demands are present, everything will suffer. We will ultimately go out of business under very negative circumstances, and we will be depriving children of much-needed services. That will impinge on the entire society.”
I asked Miller how likely nonprofits were to heed her suggestions, which are terrific even during good times, now that the sector is scrambling and may not have the capacity to plan so strategically.
“In the past few years we haven’t necessarily used the good times to build our strength so that we’re ready for the bad,” she replied. “It may be that because the nonprofit community has already been stressed during the good times, we’re really not ready for the bad times, even more so than usual. It may be the extra push we need to stand up and be counted and say, ‘We can’t takt it anymore.’”
In(c)ights, an interview with a nonprofit professional, appears Wednesdays at the 501(c) Files. | 501(c)
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