Weathering The Storm

Nonprofit Survival Tactics in the Age of Recovery
City of Chicago Treasurer’s Office Wealth and Fitness Fair April 20, 2010 Presenter: Valerie F. Leonard

What We Will Cover
•Economic Outlook 2010 •The state of the nonprofit sector in Illinois •Grantmakers’ response to the economy •Strategies for survival

Guiding Questions
• What is the state of the economy? • What’s going on in the nonprofit sector? • How are grantmakers responding to the economy? • What’s going on in the community that we serve? • Are our services still relevant? • Is our organization equipped to respond to change? • How do we position ourselves to take advantage of change and emerge as a stronger organization?

Weathering The Storm What is the State of the Economy?
• Illinois is getting to a point where they cannot pay bills. The state has a $29 billion budget – $5.7 billion budget shortfall – $5.1 billion in overdue bills at the end of December, 2009. – Projected $1 billion decline in cash receipts in 2010 – Governor Quinn has recently proposed a $276 million cut in health and human services spending (March, 2010)
Source: Crain’s Chicago Business

Trends in Key Economic Indicators for the State of Illinois 1998-2008
Personal income grew 40.2% between 1998 and 2008
Nonfarm payroll employment grew less than 1% between 1998 and 2008

The State of Illinois has an unemployment rate of 11.5%, compared to a national unemployment rate of 9.7% (IDES, March 2010) Source for Graphics: Illinois Economic Outlook Drops from 44th to 47th by Kristina Rasmussen, Illinois Policy Institute

What are the Implications for Illinois’ Nonprofit Organizations?
1. Slower economic growth often leads to lower stock prices and interest rates. Reduction in the amount of investment income for foundations to make grants. Sixty-five percent of grantmakers experienced a decline in asset value in 2009 (Donors Forum 2010).
Increases in unemployment leads to reduction in property and income tax receipts for state and local governments. Lower tax receipts means they have fewer dollars to provide to the nonprofit sector. Reduction in tax receipts make it difficult for state and local governments to meet their obligations and address the growing need for social services. The inability of the State to pay nonprofits on time is one of the greatest threats to the viability of the nonprofit sector. The nonprofit sector accounted for 8% of the State’s workers and 8.7% of the Gross State Product in 2000 (Donors Forum 2003). Declining disposable income for individuals means less money available to make charitable donations 2.

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What’s Happening in the Weathering The Storm Nonprofit Sector?
– A 2010 survey of Donors Forum Partners indicated that
• 71% of organizations reported budget decreases in 2009 • 66% reported decreases in operating reserves • 63% had only 3 months or less of cash reserves on hand; only 11% had more than 12 months cash reserves • 44% of nonprofits reported reductions in their number of full-time paid staff compared to 19% in 2008.

Source: Economic Outlook 2010: Illinois Nonprofits and Grantmakers Still Reeling After Rough Year, Donors Forum of Chicago, January, 2010

Weathering The Storm
• 41% reported decreased ability to meet service demands due to reduced funding and increased need. This is up from 22% in 2008.

• 68% reported reduced foundation giving
• 63% reported decreases in corporate sponsorships • 62% reported declines in government funding, which led to cash flow problems. Of this amount, more than half reportedly experienced delayed payments from the State of Illinois.

Source: Economic Outlook 2010: Illinois Nonprofits and Grantmakers Still Reeling After Rough Year, Donors Forum of Chicago, January, 2010

Weathering The Storm What Your Peers are Doing
Cost Reductions
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• • • • • •

Strategic Management Initiatives
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• • • • • • • • •

Adding new methods of giving Renting out their facilities Negotiating in‐kind exchanges Raising fees Cutting staff positions Reducing work hours Reducing employee benefits Reducing travel and professional development budgets Freezing salaries Eliminating non‐essential expenses Canceling special events Using reserve funds Continuing to operate in a deficit mode Scaling back plans for growth
Source: National Council of Nonprofits

Renegotiating contracts Increasing fundraising capacity, especially in individual donor programs Requiring active board involvement in stewardship and fundraising Preparing for “Worst Case Scenarios“ Reviewing and revising financial controls Increasing marketing Outsourcing Replacing full‐time staff with part‐time staff and interns Relying more heavily upon technology Partnering with other organizations to deliver programs and services, reduce duplication of staff and increase efficiencies. Lengthening the timeframe for implementation of the strategic plan

How are Grantmakers Responding?
– A 2010 survey of Donors Forum members indicated that
• 90% of the grantmakers agreed that the economy had at least some impact on their grantmaking activities. • 50% of Donors Forum members reported decreases in their giving levels in the past 12 months, compared to 32% in the 2008 survey. • 37% anticipated reductions in grant making for 2010 • Only 20% anticipated increases in grant making for 2010
Source: Economic Outlook 2010: Illinois Nonprofits and Grantmakers Still Reeling After Rough Year, Donors Forum of Chicago, January, 2010

What Grantmakers are Saying…
“We will focus on fewer projects and priorities, but intend to make stronger commitments in those areas.”

“[We’ve] become much more strategic in selecting grant recipients. [We also plan to] strengthen relationships/partnerships with grantees.”

Source: Economic Outlook 2010: Illinois Nonprofits and Grantmakers Still Reeling After Rough Year, Donors Forum of Chicago, January, 2010

Grantmakers are Emphasizing Nonprofit Sustainability
42% of grantmakers indicated that they had increased their efforts to support nonprofit capacity building and sustainability in the past year. They were most likely to provide support for 1. Technical Assistance 2. Strategic Planning 3. Board development 4. Emergency Assistance 5. Strategic volunteering 6. In-Kind donations 7. Facilitating collaborations 8. Facilitating mergers
Source: Economic Outlook 2010: Illinois Nonprofits and Grantmakers Still Reeling After Rough Year, Donors Forum of Chicago, January, 2010

10 More Strategies You Can Use

1. Assess Your Current Cash Position
• Prepare monthly cash flow projections for at least 12 months out.
• • • • Include revenues and expenses Estimate how many months’ cash you have on hand Identify cash deficits and strategies for filling the gaps Make informed decisions based on the information before you, ie, delaying hiring or major equipment purchases

• Avoid across the board cuts • Prioritize spending based on your mission, goals and values

2. Stop the Hemorrhaging
• Cut costs and think of low cost methods of bringing in cash quickly •Examples: •Phone-a-thons •Fundraising letters

3. Enlist Your Funders as Partners in Your Success
Your funders have a vested interest in your success. They should know about your challenges early on. Ask them to help with •Facilitating collaborations •Strategic planning assistance •PRI’s (program-related investments) •Emergency funding •Identifying other financial and in-kind resources •Assistance with professional development

4. Conduct a Community Needs Assessment
•Identify key issues, needs and assets within your community. •Describe the current “lay of the land”

• Use the results to • Inform your strategic plan • Develop and strengthen programs •Develop marketing strategies •Galvanize grass-roots action around needs or issues •Determine whether or not needs have changed •Make sure programs remain relevant

5. Conduct an Organizational Assessment
•Assess your organization’s •Board structure and systems •Compliance with regulators and funder’s requirements •Leadership and management capabilities •Management systems •Program operations •Human resources •Financial capacity •Goal: to determine whether your organization has the capacity to thrive in the current environment.

6. Develop a Strategic Plan
•Strategic Planning is a process in which an organization takes stock of its mission, vision, and core values to position itself to capitalize on changes in its environment. •The end product is a set of strategies to achieve a set of long term goals and objectives for the organization. •Critical Questions –Where do we want to go? (strategic direction) –How will we get there? (strategies and tactics)

Strategic Planning and the Determinants of Long Term Sustainability
External Conditions

• Organizational Assessment • Governance and Program Models • Client Analysis • Financial Analysis

• Environmental Scan • Risk Analysis • Market Analysis • Competitive Analysis • Analysis of Partners and Strategic Allies

• Assessing Mission, Vision and Core Values • Developing Goals, Objectives and Key Strategies • Work Plan • Monitoring • Evaluation • Continuous Improvement • Financial Modeling and Fundraising Plan
Planning and Implementation

Long Term Sustainability

• Increased capacity to serve clientele • More Clients • Stronger Financial Condition • Stronger Marketing Position • Stronger Networks

Internal Capacity

7. Enter into Collaborations
• Purposes •Save costs •Enhance efficiencies •Create greater continuum of care •Maximize impact •Partner with organizations with similar values, goals and objectives •Identify roles and responsibilities of the partners •Formalize the agreement with MOU’s, partnership agreements, etc.

•Maintain open and honest communication
•Develop exit strategy at the start

Sample Collaborative Structure
Legal structure could take on a number of forms, including, MOU, Partnership, Joint Venture or New Corporation (including merger). Governance could occur through a MOU, partnership agreement, advisory council, board of directors, etc.

Collaboration (Governance, Decision Making)

Program

Finance/AdminOrganization A

Marketing and Outreach (All)

FundraisingOrganization A

Case ManagementOrganization A

MentoringOrganization C

HousingOrganization B

Job TrainingOrganization C

Grants ManagementOrganization A

8. Enhance Your Organization’s Level of Civic Engagement
• Follow legislative changes that impact your organization’s
ability to deliver programs and services. •Contact your elected officials with comments or concerns about policies •Provide written and oral testimony at public hearings •Write articles and letters to the editor of newspapers and other publications that are most likely to reach your constituency •Become part of associations and broad coalitions that provide input into legislation and policies that impact your sector. •Examples: •Donors Forum of Chicago-Forum Partners •Chicago Rehab Network •ACT Now (After School for Children and Teens

9. Shore Up Your Organization’s Management Systems
• Make sure your organization is in compliance with all regulatory and grants requirements, ie, 990’s financial audits, etc. •Ensure that you have up to date policies relating to financial management, human resources, program operations, etc., that have been approved by the board

10. Find Alternative Revenue Streams
• Diversify funding sources
•Consider charging fees for some of the products and services your organization has been providing for free, ie, publications, consultations, etc. •Consider starting a social enterprise (after you have determined the feasibility and developed a business plan). •Make sure the enterprise is a natural outshoot from the work the organization currently does. For example, a gardening organization may consider developing a farmer’s market.

A Parting Thought:
The calm after the storm…

“…bold leadership in challenging times means avoiding the natural urge to retreat passively into our own organizations. Instead, we should affirmatively step forward to forge connections with others. [We should]
1. 2. Pull up a chair to the public policy‐making table. Unite as nonprofits.

--National Council of Nonprofits

Any Questions?

Contact Valerie F. Leonard Community Development Consultant 773-521-3137 valeriefleonard@msn.com