The recession is undermining the financial health of nonprofit groups, nearly a third of which ended last year with a deficit, according to a new survey.
Sixty-two percent of charities have less than three months’ worth of cash on hand to cover costs, and just 16 percent expect to be able to pay their expenses this year and next.
Many of those nonprofit organizations “were not necessarily robust going into this,” said Clara Miller, president of the Nonprofit Finance Fund, which conducted the study. “And now they’re virtually all seeing a future increase in demand for their services while they have a tightening cash cushion.”
‘Lifeline’ Groups
The Nonprofit Finance Fund surveyed nearly 1,000 nonprofit leaders in February and March. Roughly 40 percent described their groups as “lifeline” organizations that provide basic services.
Charities in the survey reported that all forms of financial support are drying up. Sixty-two percent said they were bracing for their foundation grants to decrease this year, while 49 percent predicted that contributions from individuals would drop and 43 percent expected less government support.
Twenty-seven percent of organizations said the recession had forced them to take out a loan or line of credit.
‘Worst-Case’ Scenarios
Many were also scrambling to cut costs. Sixty-five percent of survey respondents said they had developed a “worst-case scenario contingency budget” or were considering doing so. Forty-one percent were considering cutting jobs or salaries or had already done so, while 39 percent had cut or reduced programs or were mulling that step.
Thirty-two percent expected that their charity would not recover from the recession for at least two years, and 20 percent said the economy would have a permanent effect.
The report is available online.
| HOW NONPROFIT GROUPS HAVE FARED DURING THE RECESSION | Percentage of groups that have taken the following steps in the last year--or that plan to take such action | | Develop a ‘worst-case scenario’ contingency budget | 65% | | Reduce staff size or salaries | 41% | | Freeze all hires and current staff salaries | 48% | | Reduce employee hours (short weeks, furloughs, etc.) | 22% | | Reduce employee benefits | 21% | | Reduce or eliminate programs | 39% | | Collaborate with another organization to provide programs | 42% | | Collaborate with another organization to reduce administrative expenses | 13% | | Merge with another organization | 5% | | Reduce or refinance occupancy costs | 18% | | Sell assets such as a building or securities | 6% | | Use reserve funds | 43% | | Delay payments to vendors | 23% | | Speed up the collection of receivables | 22% | | Engage more closely with the board through more frequent reports and meetings when necessary | 59% | | Hold conversations with funders to explain the organization’s situation and projections and/or to discuss the use of currently restricted grants | 48% | | None of the above | 4% | | Other | 15% | | Percentage of groups that expect the recession to: | | Have a short-to-medium financial negative effect (less than two years) on the organization | 45% | | Have a long-term negative financial effect (two or more years) on the organization before the group returns to its pre-recession state | 32% | | Force the organization to permanently adjust to a new financial reality | 20% | | Make no difference | 3% | | How nonprofit groups describe their current financial situation | | Concerned about meeting next month’s expenses | 10% | | Concerned with meeting expenses for 2009 | 38% | | Should be able to cover 2009 expenses, but feel uncertain about 2010 | 47% | | Anticipate being able to cover expenses in both 2009 and 2010 | 16% | | SOURCE: Nonprofit Finance Fund | |