How to Avoid the Big Financial Hardships That Can Hurt Nonprofits

The current financial recession is often called a “fiscal crisis” in nonprofit circles. It is also called the “economic crisis”, and some call the looming crisis with government budgets the “double bottom” or the “financial collapse.” Whatever the term, nonprofits have found that this period since 2008 has created budget cuts and deficits for many programs.

During this fiscal crisis, most nonprofits have struggled due to a combination of funding cuts and increased service requests. When an agency is faced with a big cut, it can be devastating. When the board and staff are willing to do a little more analysis and budget planning, they can reduce the organization’s risks and increase its health and sustainability.

Several market analysts are now saying that large budget deficits in states like California, Illinois, and others will create even bigger cuts for nonprofits in the future. And there are some municipalities that are on the verge of bankruptcy.

Smart nonprofits will analyze and prioritize their programs and services, and set parameters around their service delivery, identifying how much they can do. They will analyze their budgets, identify areas where they could have additional cuts, and develop strategies to lower program levels and / or attract more funding from other sources, such as donors.

Here are some things you need to do to achieve greater stability and sustainability:

1. Review each program and its funding. Review funding levels and what funding covers for each program. Assign a risk factor to each program, based on program priority and mission centrality, ability to meet unmet community needs, service activity levels, current funding stability, and potential for for the program to obtain additional funding. Decide what to do if certain levels of cuts are made to the programs. Get feedback from program managers and share plans with the board.

2. Study the budget and develop some scenarios on how to deal with different types of cuts. Discuss funding sources and budget trends with the local government. Prioritize the areas, identifying where you will cut first and where you will resist cutting. Have a general scenario as well as plans for each area of ​​the program.

3. Working with program managers, develop priorities for maintaining or cutting programs based on funding levels, centrality of mission, ability to meet needs, and level of competence in the community. Analyze how well programs can work with different levels of cuts, such as 10%, 15%, or 20%. Determine how your organization will reduce the number of services, types of services, or access to services in order to manage on a tight budget. Program managers and staff are often excellent resources for developing effective strategies. See if it makes sense to combine efforts with another nonprofit that has similar programs. This could mean sharing one or more programs, or more intense collaboration.

4. Review the donor base and develop specific strategies to reach medium and major donors. Develop a proactive fundraising plan that includes appeals, special events, donor requests and specific grants, and contract submissions. Get the board involved in fundraising through individual donor meetings or a special event. Board involvement in donor development is absolutely key. Try to create additional volunteers to work on donor development, recruiting people who are current donors and are known to the board members. Make sure board members know the importance of raising money, that the money raised could literally save a program.

5. As plans are developed, and before finalizing them with the management team and the board, schedule group and individual meetings with personnel managers, the board, and all staff to discuss changes and plans to respond to potential budget cuts.

Have regular meetings with managers. Get managers and staff to share your suggestions and discuss your concerns. Cuts are difficult and can hurt morale. Communication is essential. Discuss these issues at every board meeting. Review fundraising progress at each board meeting, with a strong emphasis on donor development. Rely on experienced and enthusiastic board members to lead others. Use financial analysis to set your budget for the next year. Review progress on a monthly and quarterly basis.