The Bridgespan Group’s survey of 800 nonprofit leaders regarding the economic downturn explores the current challenge faced by nonprofit organizations: an increased demand for services coupled with declining revenues. Based on over 100 responses from various nonprofit CEOs, Presidents, and Executive Directors from across the country, the Bridgespan Group suggests this recession is affecting nonprofits more quickly and severely than even the four longest recessions since 1967 in which the most serious effects were not felt until one or two years after the recession ended. 75% of nonprofits in the Bridgespan Group survey reported they have already felt the effects of budget cuts (some cutting budgets as much as over 21%), a rising demand for services, and staff anxiety and uncertainty about financial livelihood in both earned income and philanthropic funding.

 

Nonprofits across the sector are being affected, irrespective of their main funding source. To combat these challenges, nonprofits are taking various approaches to protect the organization’s “core” such as:

• Considering actions such as scaling back or eliminating a subset of programs in order to reallocate and refocus resources on the programs that are most vital to their mission.
• Increasing communication with stakeholders such as key funders, board members, and staff to engage them in addressing the economic downturn and/or the decision making process.

However, the decision making process requires more than just determining which strategy to employ. An organization must also decide how best to implement it. For example, as an executive director in the survey explained, “[i]t’s a delicate balance between communicating early on and creating anxiety or waiting until there is clarity on what is happening.”

Furthermore, many of the nonprofit organizations in the survey show signs of being under- or unprepared with only three to six-month operating reserves or poorly defined contingency plans that fail to identify key tripwires for enacting the plan, the core programs to the organization’s mission, and where/how to cut spending. While the prospect of declining revenues may be difficult for an organization to accept, the Bridgespan Group advises organizations to be realistic about the obstacles that lay ahead because “delaying expenditure cuts during a recession in the hopes of increasing revenues may have serious consequences.” For example, the Bridgespan Group points to the 2001 recession which caused a 20% increase in the number of nonprofits operating on a budget deficit due to expenses growing at a significantly faster rate than revenues. This effect lasted until 2005 when the nonprofit sector finally returns to 2000 levels.

When faced with tough times, it becomes especially important for an organization to make the tough choices. The Bridgespan Group has also compiled an article to help organizations construct their specific approach by learning from the experiences of organizations that have faced less severe financial crises. Both wrong and right choices have long-term consequences and “[h]ow we run [this financial marathon] will make all the difference to whether—and in what shape—our organizations are able to cross the finish line.”

The Bridgespan Group survey of 800 nonprofit leaders regarding the economic downturn, “Managing Through Tough Times,” is available here.

More information about how to lead nonprofits during this recession is available at the Bridgespan Group’s Managing in Tough Times resource center.

-Emily Chan