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Is Your Organization Recession-Proof?

February 25, 2008

Nff_logo_2Shaky credit markets, the housing slump, and soaring commodity prices have many worried that the economy is headed for a downturn; in fact, as regular contributor Michael Seltzer notes, some states (California, Florida, Michigan) and industries (auto manufacturing) are already in recession.

That's worrisome news for nonprofits, which often suffer a double hit in challenging economic times as individual donors, foundations, and government look to trim budgets and preserve principal. An analysis of new data from over 6,500 mid-sized nonprofits released earlier this month by the New York City-based Nonprofit Finance Fund reveals that it took years for many nonprofits to recover from the economic downturn in the U.S. that started in 2001 (and was exacerbated by the 9/11 attacks). According to NFF, the

number of all nonprofits in the sample that suffered deficits grew by 20 percent in fiscal year 2001 and had not returned to 2000 levels by 2005. Over 40 percent of the nonprofits reported a deficit in 2001, as well as in the two years immediately thereafter. From 2001-2003, nonprofit expenses in general grew at a faster pace than revenue, suggesting that organizations were providing more services than they could afford in response to increased need from their constituencies. It was not until 2004 that expense growth rates among nonprofits reflected a full adjustment to the lower revenue growth rates....

What can nonprofits learn from the last recession that might help them weather the next one? According to NFF, they should:

  1. Avoid "strong, silent behavior" and sustained spending, which has been a hallmark of the industry for more than a decade.
  2. Engage with board members and funders in contingency planning on what is likely to happen to clients during a recession.
  3. Avoid large investments in fixed assets and infrastructure.
  4. Get a firm handle -- today, not tomorrow -- on your revenue streams/patterns.
  5. Approach government funders more aggressively, especially if you're in the service-delivery business.

"What nonprofits do now," says NFF president and CEO Clara Miller, "will have consequences that resonate far beyond [their] bottom lines....With fewer dollars flowing into the sector, nonprofits face the possibility of being forced to cut services at a time of increased need. Philanthropists, government, and nonprofit organizations will need to work together much more closely to ensure ongoing services for at-risk populations."

Click here to listen to a podcast of the press event at which Miller outlined NFF's recommendations.

-- Mitch Nauffts

Comments

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Here's a pickup from my new favorite blog, Barry Ritholtz' Big Picture (TBF):

"Let the economists, pundits, strategists and talking heads debate all they want. CFOs -- the people in charge of Corporate America's finances -- have already weighed in. The folks who have the greatest influence in corporate hiring and capex made their views known in a recent Duke University/CFO Magazine survey completed on March 7.

"What did the CFOs say? 'A recession has already started and the downturn is likely to last longer than in the recent past, with the economy recovering only late next year.'"

Follow the link for the complete post:
http://bigpicture.typepad.com/comments/2008/03/cfos-recession.html

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