With recession warnings routinely flashing, Steve Zimmerman offers a cautionary tale from the last downturn.
The co-author of a book on nonprofit sustainability, the Milwaukee-based consultant says he works with a group that launched a capital campaign in 2007, before the Great Recession hit in force. Construction began in 2008, but then the stock market crashed, unemployment soared, and donors backed out of their pledges. “It really almost killed the organization,” he says.
His advice today: Set realistic fundraising goals. “And don’t put shovels in the ground until you know you can do it.”
Zimmerman is one of several nonprofit veterans and experts the Chronicle asked to consider how charities can prepare for the recession that some economists are predicting is likely this year or next. Most echoed Nonprofit Finance Fund CEO Antony Bugg-Levine, who said: “The best time to prepare for a recession was five years ago.”
Bugg-Levine and others stress that the key to weathering an economic downturn is sound financial planning and work that should happen during good times — things like building up surplus funds, diversifying sources of revenue, and strengthening relationships with key donors and foundations.
Still, the experts offer a few suggestions as to what groups can do even now, when the wolf seems to be at the door.
Identify what economic conditions affect your donors. David King, head of the Alexander Haas fundraising consultancy, says organizations sometimes worry over “the economy with a capital ‘E’ " — the global or national economic outlook. He advises instead to “go micro” and look at how key industries or regions are faring.
For instance, if key donors work in the tech industry, that’s where you should focus. Or if you draw from a particular region, study the economics of that area. The Pittsburgh economy, he notes, is booming, thanks to a soaring natural-gas industry. Nonprofits in Austin and Dallas, meanwhile, are reckoning with a contraction in the oil industry.
The stock market and the Dow Jones index are not always the best economic indicators, King notes. “If the Dow is not your economy, don’t get sucked into” a panic over it.
Consider what revenue lines could be vulnerable. In many organizations, senior executives don’t have a finger on the pulse on the organization’s finances, says Jerry Hauser, head of the Management Center. “They don’t even know where it is.”
Hauser, whose organization works with many small and midsize social-justice organizations, says financial vigilance doesn’t require fancy modeling; executives need only a monthly cash flow spreadsheet with line-by-line revenue figures. CEOs, he says, should question the assumptions behind each number. If a grant or pledge doesn’t come through, for instance, is there cushion in the budget?
Share financial assessments. Zimmerman urges leaders to share such financial checks with their trustees and key executives so that others can help monitor the key drivers of revenues and expenses. “Now is the time to really make sure everyone understands them and can act upon them,” he says.
Tighten up and plan conservatively. Kate Rubalcava, head of the Utah Nonprofits Association, is planning for some lean times ahead even though the state’s economy and charitable giving look strong. “I’m making sure I’m not overly excited about revenue goals,” she says.
She also tightening up expenses and trying to sock away more in savings. “That makes me sleep better,” she says.
Determine now — before any crisis — what’s essential to your organization’s mission. “In terms of expenses, it’s just good practice to understand what’s absolutely necessary to meet your mission and what is not,” says Nonoko Sato, associate director of the Minnesota Council of Nonprofits and the former leader of a San Francisco group. “You never know when you’re not going to be able to meet your revenue goals.”
King advises that executives should develop a plan to respond to a drop in a charity’s income by a third. Do it now, he says, before you’re caught in the emotion of a crisis without time to be thoughtful.
That plan should be in your desk drawer at all times, not just when economic storm clouds gather. “It’s not an exercise that’ll go to waste,” he says. “Unfortunately, the fact of the matter is: You’ll need it someday.”
Determine which staff members are not core to your mission. Personnel makes up 70 to 80 percent of expenses for most Management Center clients, according to Hauser. Executives ought to routinely evaluate staff contributions and assess the impact of programs, he says. Individuals who aren’t in the right position or aren’t contributing should be let go, and ineffectual programs should be eliminated to free up money for effective work and to build a surplus to help ride out a downturn.
“Don’t wait for hard times to make hard decisions,” Hauser says. “It sounds harsh, but we’ve had clients spurred by times like these to make decisions that they knew all along they should have made.”
Strengthen relations with donors and grant makers. The Great Recession spurred some foundations and nonprofits to build closer relationships. In California, grant makers and their grantees have come together in the Real Cost Project, with charities closely examining their finances and talking openly about their needs to foundations and donors.
“More foundations are paying attention and understanding the importance of unrestricted support,” says Fred Ali, head of the Weingart Foundation, a leader in the Real Cost Project.
Ahead of any recession, nonprofits ought to examine their own finances and talk over the good and the bad with grant makers and donors. “Be more blunt,” Bugg-Levine advises. “If you’re facing recession, you’ve got to get ahead of your financial need. Make that phone call to your funders even if it’s uncomfortable.”
Don’t panic. The Great Recession had unusually severe consequences. Economic slumps in the previous 30 years did not lead to much of a retraction in charitable giving, if any,
“Dips in giving tend to be short-lived,” King says.
