Keeping Charity-Owned Businesses Afloat in the Economic Downturn: Tips From Experts

Daunting economic conditions make it more challenging than ever for nonprofit groups to start a business or keep one afloat. Experts offer the following suggestions:

Don’t panic. The fundamentals of business don’t change, even in a downturn, says Rolfe Larson, who runs a consulting company that specializes in nonprofit business ventures. To be successful, he says, businesses still have to lure and keep customers, provide good service, and keep prices competitive.

Watch the numbers. Keeping an eye on costs and cash flow takes on increased importance in a tough economy, says Mr. Larson. He says a business that typically runs its financial reports every couple of months should probably move to a monthly or even weekly schedule.

Planning is important. More charities are creating a range of contingency plans for their businesses, says Mr. Larson. In the past, he says, executives might have planned for two scenarios — say, revenue increasing by 10 percent or revenue decreasing by 10 percent. Now it’s not unusual for officials to outline what course of action to take if revenue increases by 10 percent, decreases by 50 percent, or hits any of several points in between.

“You look at the things that you can predict, and those things that you can’t,” says Mr. Larson, “and you make plans accordingly.”

Be realistic. Many nonprofit groups are reeling from drops in their philanthropic support, but organizations in financial crisis must be sure not to start a business simply because it seems to be an easy way to earn money, says Julius Walls Jr., chief executive of Greyston Bakery, a business that provides job training in Yonkers, N.Y.

“A business takes capital and resources and risk, and businesses do fail,” he says. “If you’re already struggling, and you start a business that is going to drain resources, and, God forbid, that business fails, then you’re in a worse position.”

Look ahead to the economic recovery. The two businesses that Chrysalis operates in Los Angeles provide work experience for nearly 600 people each year who are homeless, returning from prison, or have other problems that hamper job prospects. The charity wants to serve at least 100 more clients, and the fastest way to do that is a third venture, says Mark J. Loranger, the organization’s chief executive.

The downturn, he says, provides a valuable opportunity to plan and lay the groundwork for a new business, which the group hopes to start at the end of this year or in early 2010.

“It’s a great time to be planning a business, not a great time to be opening the doors of a new business,” says Mr. Loranger. “If I was opening that business today, I would be terrified.”

Mission is key. To make smart choices in response to the economic crisis, nonprofit organizations need to remember why they started their businesses in the first place, says Caroline Pappajohn, associate director of New Door Ventures, in San Francisco.

The charity runs two businesses to provide job training for troubled young people. When New Door had to cut expenses in October, it laid off two administrative employees and cut hours for other staff members to protect the training positions for young people.

If the group’s main reason for starting the businesses had been to make money, the cost-cutting measures it took would have been very different, says Ms. Pappajohn. “We knew that when push comes to shove, our main focus was to employ the youth in a real-world setting,” she says. “It was very clear to us that we needed to make cuts in any other place but there, because that was our main goal.”