December 11, 2008 | Read Time: 3 minutes
More than half of the charities in a new national survey say the country’s economic woes have led to cuts in the money they receive from private and government sources, and a quarter of those surveyed report that they have already obtained a line of credit to keep up with expenses.
The survey demonstrates how sharply and quickly nonprofit groups have been affected by the financial crisis, says William Foster, a partner at the Bridgespan Group, the nonprofit consulting organization that conducted the survey.
“It’s being felt in a way that is different from previous downturns,” Mr. Foster says. And, he notes, many nonprofit groups appear unprepared to weather the troubling times.
Roughly three-quarters of the charities said they believed that support for groups like theirs would decline by more than 5 percent, while only 55 percent of the charities said they thought that their own revenue would fall. And while nearly half of the nonprofit organizations said they had contingency plans to deal with cuts in financial support, only about one-quarter described their plans as “well defined.”
More than half of the charities held reserves that would cover only three months or less of operating expenses. A third said they had already dipped into their reserves.
The survey, conducted last month, included 117 charities that work on a wide range of causes, more than half with annual revenues of less than $3-million.
Government Aid
The findings show that charities that rely heavily on government money are the most likely to have faced cuts in aid. Among organizations whose support comes primarily from private foundations, nearly half have already suffered cuts, and 61 percent report that they have been told by grant makers to expect reductions in grants in the future.
Some charities, Mr. Foster says, appear to be taking a well-managed approach to handling the economic downturn, taking time to assess their programs and costs in order to make surgical, rather than across-the-board, cuts. Two-thirds of the survey respondents said they had no plans, or very limited plans, to reduce all of their activities. Nearly half said that an examination of the full costs of each program would play a significant role in the way they deal with possible cutbacks.
“There’s nuance as opposed to peanut-butter cutting,” Mr. Foster says.
At the same time, he says, some organizations, even those that have already seen revenue drop, have been slow to take cost-cutting action. More than one-third of the charities that have experienced cuts are not using any of the cost-cutting tactics they were asked about in the survey, such as reducing salaries or overhead expenses.
Instead, many charities are focusing their efforts on improving fund raising. Nearly three-quarters are somewhat or very interested in diversifying their sources of financial support, and more than 80 percent are somewhat or very intent on investing more deeply in the relationships they have with grant makers. Three-quarters of the charities are somewhat or very interested in engaging board members to help handle the financial crisis.
More information about the survey, “Managing Through Tough Times,” can be obtained online.
