Riding Out the Recession

The last 18 months have been tough for Trosa Moving, the largest of the five businesses run by Triangle Residential Options for Substance Abusers, a nonprofit organization that runs a free, two-year treatment program in Durham, N.C.

Last year diesel prices soared. Then, as the national economy slowed, moving jobs became harder to come by, and some of Trosa’s competitors lowered their prices.

The result: Trosa Moving’s revenue declined by 10 percent last year, and it looks like revenue in 2009 will be about even with 2008. That represents several hundred thousand dollars in lost revenue each year, at a time when demand for the charity’s services is rising, says Keith Artin, the charity’s chief operating officer.

“I don’t think we’re worried we’re going to be shutting our doors in July or August,” says Mr. Artin. “But if you talk to me a year from today, and things haven’t turned the corner yet, then I start to worry.”

‘A Lot of Exploration’

Charity-run businesses, like Trosa Moving, have had to contend with many of the same financial pressures as their for-profit counterparts, including tight credit and investment markets and, perhaps most significantly, a drop in spending by consumers, businesses, and other nonprofit groups.

As revenue falls at many nonprofit business ventures, their leaders are taking steps to staunch the losses, hold on to customers, and try to ride out the financial storm.

But the news isn’t all bad. Some businesses run by charities, like thrift stores, have actually been buoyed by the recession, and a growing number of groups are turning their attention to newer industries, such as recycling and clean energy, that they think will grow in years to come.

“There’s a lot of exploration going on out there,” says Kris Prendergast, chief executive of the Social Enterprise Alliance, a national membership group for nonprofit organizations that run businesses or have other income-producing activities.

She believes that current economic conditions may prevent nonprofit groups from starting businesses now, but as they realize the difficulties of depending on contributions or government aid, they may change their approach.

A survey of 848 charities released last week found that 54 percent now run businesses. Of the groups that did not already run a business, 57 percent said they were thinking about starting another one. The survey was conducted by Community Wealth Ventures, a Washington consulting firm that focuses on nonprofit businesses.

Some charity officials say that with a well-thought-out plan, now can actually be a good time to build or carefully expand a business, as many basic costs, such as rent or employees, are lower than they would be in a booming economy.

Sales are growing at the four-year-old ReStore run by Habitat for Humanity Portland Metro/East, in Oregon. In February, for example, revenue at the store, which sells donated building materials, was 20 percent higher than the charity had projected in its 2009 budget. Anxious because of the economy, shoppers are taking the time to look for bargains, says Joe Connell, the ReStore director.

Despite the downturn in the economy, the organization opened its second store in March. Although it had been in the planning stages long before the downturn in the economy, the organization’s board had to make the final decision this past fall, in the midst of the financial meltdown.

One of the key factors that helped win over the board was the deal the organization was able to negotiate on the building where the store would be located in, says Mr. Connell.

“It had been sitting empty for three years,” he says, “and then this economic trend set in, and it looked like it would probably be sitting empty for awhile still.”

Opportunities to Build

The leaders of Abundant Table, a charity food-service business in Boston, think there might be opportunity in the downturn as well. The venture prepares 3,000 meals a day. Two-thirds are for its parent charity, Pine Street Inn, which provides assistance to homeless people, while the remaining 1,000 are for other nonprofit groups.

The business will take in nearly $1-million from outside customers this year, and provide culinary training for 125 Pine Street clients.

As stretched social-service groups look for ways to trim expenses, officials at Abundant Table think that more of them will want to hire an outside company to prepare their food.

“We actually do see these challenging economic times as a little bit of a boon for a business like ours,” says Anne M. Wunderli, director of facilities and social enterprise at Pine Street Inn. “It brings a focus and attention from organizations to look at all of the different cost centers that they’re dealing with, and push and see if there aren’t more economical ways to meet the needs that they have.”

Abundant Table is already working on a proposal for a local charity that is considering hiring the group as a way to save money, and Ms. Wunderli thinks interest is likely to grow when the Massachusetts state budget is approved.

But for other social enterprises that rely on nonprofit groups as customers, the financial squeeze charities face has cut into their bottom line.

Orders from nonprofit groups account for about half of the revenue at Asbury Images, a screen-printing business run by New Door Ventures, a San Francisco charity that provides job training to troubled, low-income teenagers and young adults. Sales dipped 10 to 12 percent the first three months of 2009, compared with the same period in 2008, according to Caroline Pappajohn, associate director of New Door Ventures.

“Nonprofit budgets have gone down considerably, so they’re not giving T-shirts for their events, whereas before it was just what you did,” she says. “You came to a camp, and you got a shirt.”

Anticipating the slowdown, New Door Ventures made budget cuts in the fall that have largely offset the decrease in sales. The screen-printing business has also reached out to charities that previously have placed orders, offering to meet their new budget needs.

“We know that we’re in it for the long term,” says Ms. Pappajohn. “Our business is not going away, and we don’t want our customers to go away.”

Credit Woes

The tight credit and investment markets that are at the heart of the financial crisis have also buffeted some charity-run businesses.

Greyston Bakery, one of the largest and most-successful charity-run businesses, employs 65 residents of Yonkers, N.Y., many of whom have checkered work histories when they start because of substance abuse or time in prison. The company makes money for the charity that runs it, the Greyston Foundation, which provides low-cost housing, day care and after-school programs, and treatment for people with HIV and AIDS.

In 2004, the business moved to a state-of-the-art facility on the Hudson River, financed in part by tax-exempt municipal bonds, which have a variable interest rate that is determined when they are resold in weekly auctions. For two weeks in October, when credit markets came to a near standstill, there were no bidders for Greyston’s bond, and when the bond did sell again, the organization had to pay a higher interest rate for the next two to three months.

The business paid $20,000 to $30,000 more in interest during that period than it expected to.

“It wasn’t world-ending for us,” says Julius Walls Jr., chief executive of Greyston Bakery. But it was, he says, a wake-up call. “We’re not sitting around worrying about whether it will or will not sell at this moment,” he says. “But obviously we’re no longer virgins on this issue, so we have a heightened sense of awareness around the credit markets and what impact it can have on us.”

For some charities with more than one business, growth in one can cushion the organization against losses in another — and even in its fund raising.

Chrysalis, a charity in Los Angeles that helps homeless and other needy people get jobs, relies on its two major businesses for roughly $3.8-million of its $6.8-million annual budget.

Those businesses are producing about as much income this fiscal year as in 2008, despite a 10-percent decline in revenue from the charity’s temporary-staffing agency. That’s because its larger street-maintenance business, which employs 100 to 125 people a week, has earned more revenue compared with last year.

To attract more business, managers at Chrysalis Staffing have changed the way they talk about the service with prospective employers.

“We’re trying to change the conversation to be not just that extra person you need when you’re really busy, but the extra resource you need to fill the gap from the folks you had to lay off,” says Mark J. Loranger, chief executive of Chrysalis.

The charity has also seen donations drop. Giving by individuals and corporations decreased about 10 percent in 2008, and gifts in the first three months of 2009 have been slow compared with the first quarter of 2008.

In December, Chrysalis laid off five staff members. Mr. Loranger thinks the number would have been higher if the group didn’t have the businesses. “If we were solely dependent or primarily dependent upon private support or government support — particularly in the state of California where our state government is under intense fiscal pressure — I would not be sleeping at night,” he says.

Gains for Thrift Stores

In a climate in which consumers are cutting back on their spending, thrift stores are thriving.

Nationwide, same-store sales at Goodwill thrift shops rose 10.1 percent in January, compared with the previous year.

Sales at the 17 stores run by the Helping Hand of Goodwill Industries, in Kansas City, Mo., increased 14.5 percent in 2008, and so far, 2009 figures are running 11 percent higher than the same period a year ago.

Despite the growth, Tom Dooley, Helping Hand’s vice president of retail operations, says he is still worried.

In 2008, after six years of double-digit increases, the number of items donated to Goodwill dropped by 5 percent. The number of donors was pretty consistent, says Mr. Dooley, but how much each person gave — and in some cases, the quality of what they gave — went down.

In addition to their well-known thrift stores, many local Goodwills do contract work, offering services to businesses — such as packaging, light manufacturing, recycling, cleaning, and lawn care — as a way to employ people who have disabilities or other barriers to employment.

Slowdowns in Contracts

Contract work isn’t faring nearly as well as the thrift stores, says Jim Shaver, vice president for marketing and development at Goodwill Industries of the Valleys, in Roanoke, Va.

Earnings from contracts with businesses totaled $5.3-million in 2008, roughly 15 percent of the organization’s annual budget. With only three months to go in the 2009 fiscal year, revenue from contracts totaled $3.5-million. Mr. Shaver expects it will be down 10 to 15 percent when the fiscal year comes to a close in June.

As manufacturers cut their production, the amount of work they need Goodwill to do also shrinks, says Mr. Shaver. In the first three months of 2009, Goodwill Industries of the Valleys lost at least six janitorial contracts because companies took on the work themselves.

The charity runs work centers for employees who need the most supportive work environment. To cut overhead costs, the group this month consolidated its three work centers into two.

The charity’s contract work developed at a time when manufacturing and tobacco drove the regional economy, says Mr. Shaver. But those industries have taken a hit in the last decade, giving way to a service-based economy.

The organization is now working to increase the amount of work it does in areas like cleaning and lawn care. Says Mr. Shaver: “We’ll be doing fewer and fewer things in a controlled work-center environment, and more and more things in the community.”