Tighten your belt Featured

8:00pm EDT August 26, 2009

Today’s economic challenges have taken a toll on many nonprofit organizations. “These are very difficult times,” says Gregory E. Halko, CPA, CFE, senior manager with Skoda Minotti. “Organizations are facing a decrease in their public funding. On top of that, endowments are down anywhere between 25 to 30 percent.”

According to a study conducted by the Nonprofit Finance Fund, 16 percent of 986 nonprofit organizations surveyed said they’ve been directly affected by the downturn, and 52 percent expect the recession to have a long-term negative financial effect on their organization.

Smart Business spoke with Halko about how nonprofits are handling the financial stress and what any company can learn from them.

How have today’s challenges affected the nonprofit industry?

From what we’ve seen, today’s challenges have taken a toll on the majority of nonprofit organizations. It seems all areas of revenue have been affected: contributions, government funding, earned income, investment income, etc. Some specific nonprofits have been hit particularly hard — like the arts.

The ironic thing is that while there seems to be an increase in demand for health and human services, state and local governments — from whom these nonprofit organizations receive the majority of their funds — are squeezing their budgets. The nonprofits are trying to find ways to provide these services that are desperately needed with shrinking revenue sources.

What must nonprofit organizations do to adapt and succeed today?

First, they need to take a very close look at how they are operating internally and how they are administering their programs. Do their programs truly align with the mission, finances, and goals of the organization? If not, they may want to consider a redesign of their programs to get the same results in a less costly manner.

Organizations need to perform an analysis and determine what these programs are truly costing them, then determine if it makes sense to continue those programs. Look at where you can save costs. Examine every little nook and cranny of the organization to see where dollars are being spent. Is a program contributing to the mission of the organization and providing a meaningful service? Some organizations are starting to work even more closely with their funders to address these obstacles. Ensure that you are allocating the resources within the organization correctly.

What can be done to adapt to the downturn?

Ensure that you are billing for all services rendered. Money is tight, but you need to make sure you’re billing for all the services for which you are entitled to receive payment. Take a look at the investment and spending policies of the organization. Maybe it is time to revisit and tweak those policies based on the current economy.

Get out in front of the public and let them know how important your mission is. Let them know that you have a strong mission and, most importantly, how it is benefiting society.

The state of the current economy has been compared to a crisis. Take advantage of the situation, and cut inefficient programs and expenses. As a few have said, a good crisis is a terrible thing to waste. Use the crisis to build a stronger organization for the future.

How can organizations find alternative ways to generate funds?

It’s tough. You have to really change your way of thinking and look outside of the box and then determine what way best suites the needs of the organization. There is a strong correlation with making your mission known to the public.

Take a look and see what other organizations are doing to generate funds. Special events are still pretty popular. Although people are cutting back on charitable donations, this is still a lucrative way to raise funds.

Other funding sources may be available that you are not aware of, such as grants or government programs. Be proactive and start investigating those channels.

Nonprofit organizations can also utilize social media to help generate funds. Many of these sites are free and they’re becoming very popular. One example is Facebook, which currently has approximately 250 million users, 25 million of whom support at least one nonprofit cause; another example is Twitter which has about 14 million. Nonprofits can use these sites to educate people about their mission and programs, which can help turn them into donors.

What are the biggest obstacles to keeping nonprofit organizations healthy?

Taking the time to sit down and really examine all the aspects of the organization with the board or the respective committee is difficult. For instance, you need to know exactly where the revenue streams are coming from, and what the true program costs are to the organization.

Analyze the organization as a whole to see where improvements could be made and where the potential is for saving costs, but still be able to provide these services to individuals who need them. That’s the trick — you don’t want to forgo the important programs that society needs but you need to survive also, so find a way to do it more efficiently with the same results.

What lessons can other industries learn from the challenges of the nonprofit industry?

Don’t be reactive; be proactive in all aspects of the business. Challenge the ideas that are brought forth by your employees in the business and take a look at how operations are being performed. Ask, ‘Is there a better way to do this, or to save costs?’ It’s being proactive versus being reactive. Again, use this time to build for a stronger future.