Monday, December 29, 2008

Is the End Near? What is Responsible Board Stewardship in an Economic Crisis? (Part I)

Tues, Dec 16(Indy) and Thurs, Dec 18(Cincy) Not-for-Profit News

Is the End Near? What is Responsible Board Stewardship in an Economic Crisis? (Part I)

by Bryan Orander, President, Charitable Advisors and Not-for-Profit News

As you know, we look for good articles and bring them to you from publications across the country. Lately, we have been looking for articles on ways to deal with the tough economic times. Sometimes I don’t find what I want to share or it is not in the format I am looking for, so I am taking this on myself.

Over the past weeks I have been engaged in conversations with nonprofits, funders, and people who provide support services to nonprofit organizations. Anecdotally, I am hearing and seeing the following:
1) The larger or more financially sophisticated nonprofits revised their yearend 2008 and 2009 budgets and financial forecasts over the past few months. They have at least assembled contingency plans and many have restructured, even decreasing staff in response to anticipated drops in revenue. Many have also increased contacts with supporters but I have not heard the results of those efforts.
2) Most smaller or less financially sophisticated organizations, who have not yet developed many revenue streams beyond grants, look more to the cash they have in the bank than any forward looking cash forecasting. They are concerned that funds may drop off but are either being optimistic that it won’t hit them or are indecisive about how to respond.

My take, which is just one person’s opinion:
1) We hope that individual giving will hold up as the IU Center on Philanthropy tells us has happened in past economic downturns. At the same time, we have never seen a time where individuals and families decreased their spending so dramatically in such a short period of time.
2) Most foundations have lost about 1/3 of their asset value in the past year. They seem to have a couple options, not knowing how quickly or when the market will recover. 1) They can decrease their giving by the same 1/3 or 2) they can give more and decrease the funds that will be available in future years. An additional factor is that foundations who make multi-year grants have already committed substantial funds for the next year or two. That means that the funds available to grant for next year could be reduced by 50% or more for certain foundations. Some foundations are also reprioritizing their giving to put more emphasis on meeting basic needs in their communities.

How can you respond?
- Have a staff person work with a financially skilled board member to forecast your cash situation for the next year. Make sure to separate restricted and unrestricted funds.
- Examine purchasing decisions and defer what you can. Leave open staff positions unfilled as long as you can without decreasing program quality or revenues and explore hiring experienced part-time people versus less experienced full-time.
- Expand your financial options – open a bank line of credit if you can; decide how far you are willing to dip into reserves if you have them; approach major supporters about special gifts or loans to weather this time; keep communications open with your donors and ask for their support.
- Again, get your finance/accounting people from board and staff together to match revenues to expenses for each of you program areas. Look at it from a fully allocated standpoint but also from the standpoint of what the actual decrease in revenues and expenses would be if the program were discontinued – certain expenses would not go away (facility, shared staff) and some unrestricted funds could be released for other programs.
- Assemble contingency plans – either based on your cash forecast or two targets – perhaps anticipating 10% and 30% reductions in revenue. View this as an opportunity to review your processes and test some of your assumptions for how you deliver services.
o What programs are most important to your mission?
o What programs provide the strongest outcomes?
o Which programs pay for themselves?
o Which programs are you always substituting and questioning why you are still providing them?
o If you could only run one program, what would it be?
o Since staff costs make up 60-80% of the budget of most nonprofits, you need to decide now what positions would go first and which are most critical to keep filled and those people well supported.
o Are there options to outsource certain functions or share a staff person with another agency?

We welcome your feedback and comments. Also stay tuned next week for Part II “What if you don’t see a way to responsibly move forward?”

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