Decisionmaking Framework

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Philanthropy Journal Webinar NONPROFITS AND THE
ECONOMYCOPING TOOLS FOR TURBULENT TIMES Paul
Bennett Director of Analytics Nonprofit Finance
Fund www.nonprofitfinancefund.org Dec. 11, 2008
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Recession How Can We Prepare?
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NONPROFIT FINANCE FUND (NFF)

• NFF connects nonprofit finance to nonprofit
  success
• Serving thousands of nonprofit and funder clients
  nationwide since 1980
• 175 million in loans over 1 billion in capital
  leveraged for nonprofits
• Over 500 customized financial consultations
• Hundreds of strategic partnerships to advance the
  nonprofit sector
• Thought-leadership to advance friendlier funding
  practices across the nonprofit sector
• Experts in nonprofit finance
• Nearly 30 years of experience as a 501(c)(3)
  Community Development Financial Institution
  (CDFI)
• Serving nonprofits nationwide from seven local
  offices
• New England Boston, New York
• Mid-Atlantic Philadelphia, Washington, DC,
  Newark, NJ
• Midwest Detroit
• West Coast San Francisco

Were in the business of helping nonprofits run
better. Clara Miller, NFF President and CEO
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What is a Recession?
DOWNTURN
RECESSION
DEPRESSION

• Short-term decline in economic activity

• Significant decline in economic activity spread
  across the economy, lasting more than a few
  months
• Usually visible in real Gross Domestic Product
  (GDP), real income, employment, industrial
  production, wholesale-retail sales
• The National Bureau of Economic Research (NBER)
  ultimately decides whether the economy has fallen
  into a recession

• Longer, more severe recession
• Loosely defined as an economic downturn where
  GDP declines by more than 10

The start of a recession can only be seen in the
rear-view mirror
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What Happens to Nonprofits in a Recession?

• Nonprofit Finance Fund studied the financial
  health of 6,500 mid-sized nonprofits to analyze
  the effects of the 2001 recession on their fiscal
  year-end data
• Economic hardship was widespread in the nonprofit
  sector during the recession
• Over 40 of sampled nonprofits reported deficits
  from 2001-2003

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More Nonprofits Experience Deficits During and
After Recession

• Over 40 reported deficits from 2001-2003
• Nonprofits suffering deficits grew by 20 in 2001
  from the previous year

Recession
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Nonprofit Expenses Outpace Revenue During
Recession

• Rate of growth in expenses generally exceeded the
  growth in revenue from 2001-2003. Organizations
  may have provided more services than they could
  afford in response to increased need from
  constituents.
• It was not until 2004 that both revenue and
  expense growth rates realigned

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Recommendations For Nonprofits In Recession

• Review and optimize cash deposit risk,
  concentration of investment risk, and
  concentration of revenue risk
• Avoid fake it till we make it behavior and
  sustained spending, which weaken nonprofits even
  in good economic times
• Consider how to get by on decreased revenue
  before increasing expenses
• Engage with board members and funders in
  contingency planning on how to respond to higher
  demand for services
• The goal is to ensure you stay afloat to serve
  the community
• This may mean partnering with other
  complimentary organizations
• Avoid large investments in fixed assets and
  infrastructure (e.g., a building purchase, new
  hires or expansion of services)
• To the extent possible, work with funders and
  the board to build a cash cushion to allow
  flexibility and course corrections
• Consider ways to diversify revenue, if once
  reliable sources seem questionable
• Avoid over-diversification (i.e. new business
  lines) that can increase risk
• If the organization offers services that will
  lessen the negative impact of a recession,
  approach government funders more aggressively for
  support

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Asking the Tough Questions
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Visit our website for additional
information www.nonprofitfinancefund.org