Nonprofits Must Gear Up 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 the 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 their 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 that 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.”

Todd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper published by the A.J. Fletcher Foundation in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.

Read more stories by Todd Cohen.