Recommendations for coping with economic uncertainty

Today's headlines are daunting for nonprofits. For us, sustainability is never easy, but today we face tougher-than-usual economic times. Federal budget cuts and declining state revenue forecasts, layoffs, bankruptcies, an investment banking crisis and an anticipated increase in demand for services are adding to the financial stress many nonprofits feel. As the Donor's Forum recently pointed out, "Adding to nonprofits' economic reality is the psychological effect that news of a possible recession can have on individual donors."

"I don't know whether we're in a recession or not, but it's obvious that we are in a period of difficult economy," Edith Falk, president and CEO of Campbell & Co., which provides consulting services to nonprofits, told the Forum. "Fundraising tends to lag behind the economy by six to nine months," she said. Therefore, nonprofits won't feel the full brunt of current economic conditions for another month or two.

"It's important for our sector to be prepared," said Valerie S. Lies, president of Donors Forum. "And to that end, providing ... ideas and coping strategies to deal with reduced funding has been a major part of recent discussions by our board of Directors." Here is a summary of those discussions:

How grantmakers can help

• It is import for grantmakers to fund operating expenses and for nonprofits to have operating reserves. Adopting a long-term strategy of awarding grants based on the previous 12 trading quarters, a "trailing average," can create a buffer against a changing economy.
• Foundations must maintain transparent grantmaking priorities and guidelines, so nonprofits can plan accordingly. For example, if market forces will affect the size or number of grants a grantmaker can award, grantees should be alerted. Grantmakers should also give grantees ample notice if a grant will be an exit grant, or the last one the grantee can expect.
• It is important for foundations to support capacity-building efforts so that nonprofits can develop a healthy infrastructure, Funders can offer tools and information, for example, on developing a planned giving program. They can also give grants to generate matching funds from a new or existing pool of individual donors.
• Grantors are also encouraging and facilitating mergers and partnerships that help grantees reduce expenses. For example, the Chicago Community Trust and the United Way of Metropolitan Chicago, recently funded a partnership of nine large human service agencies that will consolidate back-office operations.

Strategies for nonprofits

• For most nonprofits, it has become vital to diversify revenue streams, for example by developing an individual donor base that can be approached a variety of ways – personal solicitation, direct mail or implementing a planned giving program.
• "Try not to cut your development budget or activities," said Falk. "I know it's a tall order, but see if there are other places you can make cuts. Cut where the return on investment is the least." If cuts can't be avoided, determine which activities are the most productive and focus on them. For instance, look at special events. If they aren't productive, consider revising the format. Or, instead of working on donor acquisitions, concentrate on the donors you have. "At times like this, CEOs and development staff should be out the door and talking face to face with donors," Falk said.
• It's important to stay in touch with donors, perhaps through organizational newsletters. If you have been collecting email addresses, now may be a good time to switch to an electronic newsletter. "Electronic newsletters allow you to send out information on your organization more often at far less cost," she said.
• Be sure to remind donors of your mission and why it's important to keep funding in uncertain economic times. For instance, social service organizations can experience cuts in government funding or have to wait longer for reimbursements. At the same time, they typically experience a greater demand for services during economic downturns. Arts organizations can expect reduced ticket sales as people stop spending as well as giving.
• Two simple steps to lessen reduced giving by current individual donors are sending out pledge reminder cards or emails and longer pledge payout periods.
• Remind individual donors to check with their employers about a matching gifts program.
• It is critically important for grantmakers and nonprofits alike to continue to support and conduct advocacy. "After all," said Jeanne Kracher, executive director of the Crossroads Fund, "the economy is not a germ in a Petri dish. The government makes decisions about what and what not to spend money on, and those political policies drive the market and the economy."
• In economically challenging times, nonprofits must remain diligent in practicing good governance and adhering to best practices. Workshops, such as those HANO offers on leadership, management, evaluation, best practice how-tos and governance, can also help nonprofit staffers develop and hone skills that become even more critical when funding is tight.