Coping With Hard Financial Times: Experts Offer Advice to Charities

With the nation officially in a recession, many nonprofit groups are worried about how to grow

or even make ends meet in the months ahead.

Here, charity leaders and consultants offer advice on ways to weather rough economic times. Some of these suggestions grow out of lessons learned by nonprofit groups during the recession of the early 1990s.

Budget aggressively. When an organization starts to feel the financial crunch, it’s time to think of aggressive and creative cost-cutting strategies. The American Kidney Fund, in Bethesda, Md., is facing just such a situation, with fund-raising revenue running 20 percent below last year. So the fund is holding a competition among its 35 employees to see who can come up with the most creative strategy to cut expenses. The winner will receive a paid day off and other prizes. Of the suggestions submitted so far, one was quickly adopted: Move the annual holiday office party from a restaurant to a potluck meal at the executive director’s home. The change is expected to save the organization several hundred dollars.

In addition to trimming expenses, management consultants say nonprofit leaders should review budgets to make sure they reflect what the organization is actually spending. In preparing budgets, charity officials sometimes underestimate staff time, program expenses, indirect costs, and overhead, they say.

Bank wisely. Charity leaders can save money by shopping for better interest rates on their loans, financial advisers say. Other strategies include investigating how banks make decisions about loans and lines of credit so that charities can take whatever steps are needed to put their organizations in the best position to qualify for such sources of money should they become necessary.

Share services and space. Opportunities to save money include joining with other organizations to purchase office supplies or equipment or to share services such as bookkeeping or office cleaning.

Recruit volunteers for senior positions. Experienced workers who are casualties of layoffs and retrenchments in the corporate world might be willing to share their talents with charities.

For example, Business Enterprise for Sustainable Travel (BEST), a project of the Conference Board, in New York, currently has a volunteer filling the role of financial officer.

The volunteer, Steven M. Godeke, left the Deutsche Bank after 13 years. He says he donates his time developing grant proposals and project budgets because he sees those activities as a good way to learn skills he hopes will land him a paid job in the nonprofit world.

Trade or sell talents, goods, and services. An organization that can’t afford its own financial officer might hire another charity’s controller to work a couple of days a month, for example. “To generate new income, you might allow your staff to consult on salaried time using their managerial skill sets,” says Michael Seltzer, author of Securing Your Organization’s Future: A Complete Guide to Fundraising Strategies, and director of BEST, which promotes travel that seeks to protect local cultures and environments.

Create or increase a reserve fund. A financial cushion equal to several months’ worth of expenses helps blunt the effects of unexpected financial jolts or shortfalls in revenue.

Anticipating the possibility of a tighter budget next year, the Children’s Museum of Indianapolis has more than doubled the amount of money it is setting aside as part of a “contingency fund,” from $100,000 to $250,000, out of a total annual budget of $21.2-million.

Renegotiate terms of grants. Foundations or other financial supporters may be willing to underwrite general operating expenses during tough times, rather than insisting on making grants for specific projects. Unrestricted support gives organizations more flexibility in deciding how to keep their core programs going. Some donors might also be willing to make multiyear commitments, which helps organizations improve their budget planning.

At a recent meeting on nonprofit leadership in Silicon Valley organized by the Center for Excellence in Nonprofits, in San Jose, several California grant makers said they would loosen some restrictions. The David and Lucile Packard Foundation, for instance, is giving more unrestricted grants.

Plan new fund-raising efforts. When money is tight, some charities instinctively cut back on all spending that is not directly tied to providing services or programs. But charity leaders say that doing extra fund raising may be the better strategy.

In fact, tough times are exactly when charities need to dig in and focus on raising money, not run away from such work, says Heller An Shapiro, executive director of the Osteogenesis Imperfecta Foundation, in Gaithersburg, Md., which helps people with a genetic disorder characterized by bones that break easily. She says that despite seeing declines in income from United Way and from corporate sponsors of the charity’s November golf tournament, she proceeded with plans to hire a full-time fund raiser. The charity is also experimenting with new strategies, such as canceling its holiday direct-mail appeal in favor of a sweepstakes contest, figuring that “people will be more likely to buy a raffle ticket” this year than make a regular gift, Ms. Shapiro says, and that the strategy will help the organization bring in new donors.

Follow up on appeals. When the economy is weak, it’s important for charities to make sure they are getting the best return possible from their fund-raising efforts, says David R. Bixel, a fund-raising consultant in Nutley, N.J. “Enhance your direct mail by following up with a volunteer phone call,” he suggests. “Be much clearer with the donor community, and keep them apprised of who you are and what you’re doing.”

Publicize needs. News stories and prominently placed public-service announcements can sometimes generate a wave of response from the public.

The Food Bank of Central Florida has managed to garner press coverage on almost a daily basis, with 61 print, radio, or television stories about the food bank appearing between September 28 and November 30. Part of its success stems from its emphasis on compiling very specific data on the rising demand for food assistance at area food pantries, the number of area workers who have been laid off, and other indicators of tough economic times. The food bank updated much of this information once a week by checking in with certain “bellwether” food agencies for updates.

The food bank’s public-relations manager, Kathleen Murphy, also advised warehouse staff and employees at the charities it works with to be on the watch for compelling human-interest stories that she could pitch to local reporters. One example: a young girl who asked her friends to bring cans of food instead of birthday presents to her party, which she then donated to the food bank. Ms. Murphy has also been creative in thinking up new angles. For example, she persuaded the local CBS affiliate to do a story tracing a single can of Spam from the time it was donated until it made its way to a woman who had lost her job.

Sometimes coalitions of nonprofit groups can be an effective way of pooling resources to get publicity. A coalition of charities known as California Cares has just started a statewide publicity campaign that features television and print ads designed to increase charitable giving and volunteering. One ad displays lyrics from John Lennon’s song “Imagine” followed by the words: “Since the tragedy, 100,000 Californians have lost their jobs. Homeless shelters and crisis centers are overcrowded and underfunded. Imagine stopping the suffering. Take action to make it better.”

Atlanta’s United Way took a similar approach with its ads that read: “Strong homefront, stronger nation.”

Look for ways to be timely. Charities can use a recent news event to emphasize how a particular aspect of their work is related.

WGBH, which operates public television and radio stations in Boston, updated a two-year-old documentary on Osama bin Laden after the September terrorist attack, and it aired five new programs related to terrorism and the Middle East as part of its Frontline show. The organization then revised its fund-raising appeals to highlight the increased emphasis on public affairs and news programs. The appeals helped WGBH bring in $2.1-million during September and October this year, a slight increase over the amount it raised during the same months in 2000, at a time when many charities not engaged in relief efforts were seeing declines.

The Sierra Club last month ran newspaper ads in 16 cities urging people to relieve their stress by spending time in a favorite place outdoors, citing the American Red Cross as a source for its recommendation. The ad invited readers to post their choices on the Sierra Club’s Web site. “Sit under a tree, look at a brook, lake, river or ocean,” said one such ad. “Remember that you are still free and that there is still beauty in the world.” Charity officials are unsure if the ads led to new donations, although they believe they helped strengthen the charity’s image. Several thousand people have visited the Special Places section of the Web site, and more than 80 have added their ideas.

Engage in advocacy. As economic troubles cause federal, state, and local governments to rethink and often cut their budgets, charities that help the poor and others whose interests may not be represented by professional lobbyists should look for ways to make their cases for support, experts say.

Human-service groups should consider working with existing coalitions or forming new ones as a way to achieve this, they say — even though many leaders may think they have their hands full just keeping their charities afloat.

Bob Kardon, executive director of the Center for Excellence in Nonprofits, says charity leaders also need to be able to explain to legislators how even a modest cut in a state contract could have far-reaching implications for charities if that money has been used to secure a matching grant from a foundation or gift from an individual donor. “Being at the table is very important,” he says. “What might look like a little cut here or there could unravel a whole series of community initiatives.”

Scale down or abolish programs. There is probably no more painful decision for an executive director and a board to reach than to turn away clients in need or to abandon a program. Unfortunately, organizations may have to engage in such retrenchment if resources shrink too much.

Should such cuts become necessary, experts say, it is important for nonprofit groups to deal with the human and organizational issues associated with them. Such changes can be devastating not only to clients, but also to the morale of staff members, board members, and volunteers.

Every effort must be made to involve the people who would be affected by potential cuts in the process of deciding how an organization should cope with reduced resources, experts say.

Merge with another organization. If a charity reaches a point where it is not able to attract sufficient resources, it should consider affiliating with a stronger organization that serves similar constituencies, charity advisers say.

But timing is everything in such proposals. “The problem is that mergers work better when organizations are strong and have assets than when they’re weak,” says Doug Sauer, executive director of the Council of Community Services of New York State. “By the time they’re in debt or on the verge of closing, they have nothing to really negotiate with.”

Dissolve the organization. When all else fails, it may be time to consider whether an organization has outlived its mission or succeeded in accomplishing it, or whether a service being provided is unnecessarily duplicating other efforts. In those instances, an organization’s leadership should strongly consider folding its tent and offering the remaining assets to a kindred agency, charity leaders advise.