April, 2008
From the Trenches:
How Forum Partners are Dealing with Economic Uncertainty
In last month's Forumnotes, we reported
on ideas and coping strategies that can be useful to
nonprofits in challenging economic times. The result
of a series of recent discussions by the Donors Forum
Board of Directors, this information also included ways
in which grantmakers can help ease economic stress for
their grantees. To review the article, click
here.
To continue our exploration of the
economy and our sector, this month we'll look at the
experiences of some Forum Partners, and steps they are
taking to cope with current or anticipated economic
downturn.
Have a Plan
"One of the first things I did [as our organization's
first Development Director] was to write a development
plan," said Sharmila Kana, Development Director
at Apna Ghar, Inc., a domestic violence shelter
in Chicago for women and children. "A healthy nonprofit
is about 80 percent funded by individuals, private foundations,
and corporations, and 20 percent by the government.
Thanks to sticking to our plan, we're well on our way
there," she continued.
Karen Freitag, Executive Director of
Southern Illinois Regional Social Services (SIRSS),
an organization in Carbondale that provides substance
abuse and mental health services in Jackson County and
surrounding areas, said that vigilance in all areas
is important. "We have a monitoring system in place
to look at our finances as well as our programs, because
we have to be able to adjust on a regular basis,"
she said. "We have integrated this look-see process
into our management team process."
And, Freitag continues, "We are
always looking for additional funding sources that fit
with our mission. It's part of our culture around here."
Experiences
with Government Funding
"Here we go again," said Development Director
Cynthia Frahm, referring to what looks like a continued
downturn in state funding for arts organizations like
Chicago Dramatists, a professional theater that
develops and advances playwrights and new plays. "The
state has been instituting cuts to arts funding, and
that's hit us and so many theaters, museums, and schools
throughout Illinois."
Not all nonprofits are affected equally
by government cuts, however. "We've been fortunate
to just see a reduction – and really not very much
of one – in our government funding," said
Kana. "And I have to salute them -- our major government
funders had already told us that there would be cuts
coming, and we were prepared to look at it that way."
How does Freitag's social service agency
respond to cuts? "Sometimes our response is advocacy
– to fight against the cuts," she said. "Or,
if we're stuck with it, we may have to cut personnel
or services. We have to look at how we are going to
balance the budget."
Clara Miller, President and CEO of
Nonprofit Finance Fund, an organization that
provides services to create a strong, well-capitalized
and durable nonprofit sector, says that if a nonprofit
offers services that will lessen the negative impact
of an economic downturn (such as job retraining, food
kitchens, and housing services), they should approach
government funders more aggressively. "Nonprofits
should propose revenue-neutral changes if the government
can assist it with expansion during a recession, or
improving its practice within the context of its mission"
she noted.
Financial Strategies
for Times of Recession
NPFF's Miller also said there are specific financial
strategies that nonprofits need to employ as soon as
conditions indicate a recession may be coming. Nonprofits
heading into recession need to avoid "strong, silent
behavior" and sustained spending, which as been
a hallmark of the industry for more than a decade, and
continues to make nonprofits weaker, not stronger,"
Miller explained. "We are entering a period of
financial crisis, and we can't afford to 'fake it until
we make it.' This heroic type of behavior does no one
any good in the long run. Nonprofits need to share worries
with boards and funders, and enlist their support in
getting ready for a possible recession. Organizations
need to try to get by on decreased revenue and programmatic
spending for a year or two in light of new financial
indicators, before moving forward with challenging expenses,"
she continued.
Miller advises nonprofits to engage
with board members and funders in contingency planning
on what is likely to happen to clients and funders during
a recession. "The end clients are especially important,
as they face the greatest risk. . .in times of financial
stress," she said. "The goal of surviving
a recession is not to stay afloat for the sake of staying
in business, but rather to make sure you're around to
keep serving the public, Miller continued. "It's
important to get board members and funders to go public
with that message."
Another strategy is to avoid large
investment in fixed assets and infrastructure, such
as a building purchase, new hires, or expansion of services.
If growth or retrenchment is likely, nonprofits need
to work with funders and board to build a cushion to
allow flexibility and course corrections. "As economist
Peter Bernstein put it, 'Risk means not having cash
when you need it.' And that is particularly true for
nonprofits, which often have liquidity problems in the
best of times," Miller said.
Examine Your
Revenue Cycle
Nonprofits need to get a firm handle now on their revenue
patterns. Miller continues, "Organizations can
examine revenue cycles to see if they're contra-economy
or not. In some cases, the revenue of nonprofits actually
rise during a recession. If that's true, nonprofits
can build growth funding to allow rapid expansion to
meet needs. If the opposite it true, nonprofits can
take actions in step with cushion-developing approaches."
Organizations also need to get a handle
on the money they are owed -- accounts receivable. "Billing
and collecting your accounts receivable is obviously
very important," said Bob Eder, Senior Vice President,
Finance and Administration at Donors Forum. "Ideally,
get a check or credit card at the time of transaction,
or at least ask for a deposit." he advised. "If
that's not practical for your organization and you need
to send a bill, make sure to ask if there is anything
you can do ahead of time -- like providing a tax ID
number -- for them to be able to pay you promptly.
When sending bills, Eder says, organizations
can write or print "Payable Upon Receipt"
or "Net Ten Days" on invoices.
Another accounts receivable tactic
is to take advantage of electronic technology. Determine
if any of your major suppliers (e.g., funders) would
be willing to pay you via electronic funds transfer
-- typically ACH.
This can cut down on "float," and shorten
the length of time to get a payment into your bank account.
Eder also uses a bit of psychology
in approaching accounts receivable. "Many of us
are reticent to ask our clients to pay, but people tend
to respect vendors who are fiscally aware and know they
need cash," he advised. "And, most companies
want to pay their bills -- and will actually appreciate
being respectfully reminded to do so."
Regarding accounts payable, Eder offers
several recommendations. "Try electronic payments
again," he said. "Identify your large vendors
-- typically those you pay monthly. Determine the last
day a payment can be made to the vendor before incurring
a penalty. Arrange for the ACH payment to arrive on
that day each month. Always pay on time; but never pay
early."
However, if cash is so tight that you
do have to delay some payments, don't fail to converse
with your vendors. "Don't think vendors will 'forget'
you owe them money -- they won't. Better to call and
explain the tight cash situation," Eder advised.
"They'll want to know when you can and will pay.
Commit to a date you'll mail payment and stick to that
commitment. You don't want to damage good vendor relationships
or incur penalties or interest on your payables. That
would only make a difficult situation worse," he
said.
Nurture Your
Individual Giving Program
Despite funding cuts, Chicago Dramatists' Frahm considers
her arts organization fortunate. "This past year
we instituted our first individual giving program, and
we really had a phenomenal response -- people really
rose to the occasion," she said. "That's one
way we want to combat cuts from the government."
However, she cautions, "We don't know if our individual
giving will plateau, or subside because of the economy
-- and it seems the government cuts will continue --
so we are looking at long-term strategies now, with
our board and small executive staff."
Kana of Apna Ghar is also concentrating
more on individual donors. "I spend much more time
with individual donors -- showing them our shelter facilities,
pressing the flesh -- than trying to get additional
funding from the government. And it seems to be working,"
she said. "We have a capital campaign in effect,
and that will be about 90% individual funded."
"The analogy I use is to look
at natural disasters, such as Hurricane Katrina and
the tsunami of 2004," Kana continued. "If
you look at the government support and aid that was
given, it is actually minute when compared to what the
American people gave. That's how nonprofits should view
funding."
"Tug at the heart strings. Go
to people who feel for your cause, rather than to the
government, which is already financially strained,"
Kana advises.
Many Practical
Ideas
Here are more tips based on the advice of Forum Partners:
- Look for ways to get restricted
grants for staff development budget items.
- Explore new revenue possibilities,
including bank trust residuals.
- Work to exceed expectations for
annual events.
- Take advantage of work-study employees
from local universities to assist with clerical and
technology work.
- Ask staff to carefully watch expenses,
and cut out unnecessary spending.
- Look into sharing office space,
resources, or back-office functions with other organizations.
- Ask current board members for additional
contributions during difficult times.
- Reach out to new board or committee
members who can bring in resources.
Donors Forum
Resources
Additional
Reading
Continue reading
April
Forumnotes.
Members and Partners can log-on
to the Members
and Partners Only pages to read the latest edition
of Forumnotes. Not a Member or Forum Partner? Find
out how to join.
Archives
- February
2008
Workshop of the Month: How to Conduct CEO Performance
Reviews -- Gain Practical Tips You Can Use Right Away
- January
2008
IRS Releases New 990 Form: First
Revision Since 1979 Offers Graduated Compliance Schedule
- December
2007
There's No Better Time to be
a Forum Partner!
- November
2007
Donors Forum Supports Your Success!
- October
2007
Donors Forum is Growing to
Better Serve Forum Partners
- September
2007
Donors Forum: Now More than
Ever
- July
2007
Advocating for Stronger Action
by the Philanthropic Community
- June
2007
Forum Valerie S. Lies Celebrates
20 Years at the Helm of DFC
- May
2007
First-Ever Study on Individual
Giving in Illinois is Published by the Donors Forum
- April
2007
Foundations on the Hill
- March
2007
Best Practice How-To's
Previous issues of Forumnotes
(from November 2001) are available. To request a copy,
e-mail info@donorsforum.org.
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