action steps for weathering the recession meeting your challenges head on luncheon session for...
TRANSCRIPT
Action Steps for Weathering the Recession
Meeting Your Challenges Head On
Luncheon Session for Minnesota Planned Giving CouncilMay 12, 2009
Presented by Nancy Lee, Managing Consultant
Today’s Focus
How does a nonprofit organization face today’s economic challenges head-on?
Fundamental Tools of Strategic Fiscal Management
• Make the most of the organization’s assets
• Develop contingency plans and articulate what are the trigger points for going into “contingency mode”
• Consider whether now is the time to restructure
• Communicate needs to donors and other key constituents
What’s Happening
Impact on Nonprofit Organizations– Downward pressure on government and philanthropic funding– Increases in certain costs – Limited and / or more expensive access to credit– The bottom may take longer to reach for nonprofits
All compounded by an increased need for services
How Organizations Are Responding– Reducing operating budgets– Putting expansion plans on hold– Eliminating staff positions– Merging or dissolving…or carefully focusing – Transforming their business models
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What’s Happening
What Is Different about this Downturn?– 1980s “Devolution” of Services – 1987 “Black Monday” stock market crash– Early 1990’s Recession– 1998 Credit Crisis– 2002 – 2003 Recession
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Dealing With Today’s Economic Landscape
Prepare for a sustained economic crisis
Actively engage with today’s challenges; it increases your likelihood of emerging from the recession with important services in place
Adapt and transform; business as usual won’t do anymore
Work with others to find the best ways to generate solutions; going it alone won’t work
Lead in a manner that converts fear to engagement and hope
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Tool #1 – Understand Your Starting Position
Start With an Honest Self-Assessment
Define what financial crisis looks like for your organization in objective, concrete, and practical terms…
…so that your organization’s leaders have a shared understanding about what must be avoided…
…and so that they buy into the need to mobilize to avert problems
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Financial Self-Assessment
Ask Yourselves the Following Questions
– What has our financial track record been?
– Are we operating from a position of strength or weakness?◊ Do we typically have adequate cash flow to pay our bills?◊ Can we reasonably expect this to continue?◊ Do we have cash reserves, a line of credit to draw upon?
– What are our organization’s income sources and cost structures?
– What kind of financial flexibility do we have?
– How financially sophisticated is our board and staff?
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$96,600($380,500)($628,815)($366,354)($464,933) ($223,459) $6,454($411,616) ($849,888)
Financial Trend Lines
Tool #2 – Make the Most of What You Have Protect your existing assets
– Cash and investments are insured– Receivables are current– Property and equipment are adequately insured– Strong internal controls are in place and functioning properly
Activate underused assets– Invest excess cash appropriately– Sublease excess space– Assign the right people to the right tasks and challenges– Galvanize and use volunteers efficiently
Maximize existing income streams– Collect every dollar you’re owed– Make sure your services / reimbursement rates are priced right
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Tool #3 – Revisit the Fundamentals About Income
Financial health depends on having sufficient resources to fund stable programming.
What does this mean?– Income fully covers program expenses– Income is renewable: reasonably expected to continue into the future– Income is received from diverse sources to reduce risk
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Who Is in Control of Your Income Model?
Self-Funding– Those who use and benefit from services pay for them– Client fees, tuition, advertising revenues, donations
External Support– Institutions or individuals who don’t use services but provide support
in order to underwrite services for those who can’t pay– Grants and donations
Independent Sources– Products or services for sale to constituents or the general public– Space rental, gift shop, special editions
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Is This the Right Mix for Your Organization?
Is it reasonable to expect this mix will adequately sustain you in the future?
Are you reasonably comfortable with the degree of control you have over program funding?
Do you have the ability to convince these funders that your programs deserve their support?
Do your proposal budgets make the best possible use of the funds available through each funding source?
Which sources do you want to grow?
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Tool #4 – Prepare Contingency Plans
Make them easy to implement quickly if there is a major shift in funding or other event
Create several versions or scenarios of your operating budget
Consider dollar-for-dollar cost reductions (or prioritized “add-backs” in the case of better-than-expected results)
Know whether funding should be cut:– Vertically: eliminate an entire program or project– Horizontally: across the board– Some combination
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Prepare Contingency Plans (cont.)
Articulate the trigger points that will cause you to activate the contingency plan
– Qualify and quantify these triggering events
Decide whether you can afford to incur an intentional deficit– Allows an organization that has adequate cash and net assets
to buy time while deciding what longer-term changes must be made. This is an interim strategy only, though…
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Tool #5 – Build a Smart Portfolio of Projects
Each project fits with your mission and culture
You have the skills and knowledge required to implement this activity
Your portfolio presents a sustainable mix of bottom lines
You have sufficient infrastructure to manage the administrative load that comes with your chosen mix of funding
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A Portfolio Approach to Program Decision-Making
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H Requires Funding HI IG GH H
MissionImpact
L LO OW Generates Funding W
$ $ $ $ $ $ $ $ $ $NEGATIVE IMPACT POSITIVE IMPACT
Bottom Line Impact
How much of this can we afford?
Ideal opportunities − let's do more.
Why are we doing this?
Are we still true to our purpose?
Tool #6 – Look for Cost Savings
Renegotiate vendor contracts (they want to keep you in business!)– Health and other insurance– Printer, web hosts, phone / internet, landlord
Go digital if it means savings– Reduce the need for print materials and mailings– Some constituents may read an online newsletter or appeal more readily
than print
Clean up your contact databases and “perks” policies– Focus on your best customers– Shorten your list of comp tickets, media kits, other freebies
Do more with less, or do less with less– Focus on staff efficiency– Automate bottlenecked areas
Consider refinancing debt if it conserves cash or decreases interest expense
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Tool #7 – Engage and Communicate
Engage and communicate with all stakeholders in an ongoing, deep, and transparent manner
Funders
– Keep your key funders informed about the impact and quality of your organization’s programs
– Be transparent with them about your financial condition and plans
– Educate donors about the importance of general operating funds
– Acknowledge that you’re competing for limited funds and must demonstrate why you’re a great investment in the community
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Communicate, Communicate, Communicate
Staff
– Fear can be your worst enemy in difficult times; it saps the energy of even the most talented staff and diverts their time and talent into unproductive speculation. Keep employees informed about the organization’s economic realities and what you are doing about it
– Share good news and even small successes with staff; find ways to help them remain hopeful about the future
– Solicit their good ideas!
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Communicate, Communicate, Communicate
Board of Directors
– Keep the board informed
– Engage members wherever possible in contingency and communication plans
– Be specific about what you need them to do
– Tap their financial savvy and ability to think strategically about your organization's short and long-term success
Bankers
– Keep them informed; show them you fully understand your financial situation
– Show evidence of your organization’s management (bench) strength and engaged board of directors
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Tool #8 – Know When the Basics Won’t Do It Anymore
Many nonprofits have already spent years cutting expenses in response to funding cuts.
For these organizations it will be impossible to continue doing what they do in the same way with fewer resources. With no fat left to cut…
…they need to find new ways of operating; waiting it out until things get back to normal is not an option…
…recognize that you may have to restructure, reorganize, and engage…
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Think of Change Actions as Sitting on a Continuum
Transactional changes at one end
Revenue changes– Government funding levels– Individual / institutional contributions and fundraising events– Fees from those who use your services
Expense changes– Increases and cost pressures on many line items
Asset changes– Endowment value– Number of staff (a non-financial asset)
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Change as a Continuum (cont.)
Transformational changes at the other end
Restructure, Reorganize, and Engage
– Mission-based decisions
– Strategic, operational, and cultural
– Alternative… Service delivery strategies Staffing models Business models
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Restructure, Reorganize, and Engage
Engage– Identify peer organizations that are more efficient than yours in certain
aspects of the work you do and deliver– Explore how to restructure and combine forces so that your customers
get the best of all efforts within the resources available.
Restructure– Consider spinning off activities that don’t truly fit the mission or that
require a level of subsidy your organization can no longer afford
Reorganize– Merge with an organization that has a vision, mission and values similar
to yours– Often seen as the last resort, this strategy must be viewed through the
eyes of those who benefit from your work– Merger may be the best way to keep vital services in place for the
community you were founded to serve – to maintain your mission
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