Wednesday, September 9, 2009

Back to School

With the last quarter of the year on the near horizon it seems America's nonprofits are and have been struggling with endowments sliced nearly in half, deep cuts in government funds and giving in general off anywhere from 10-30%. Admittedly these data are impressionistic, reliant on trade gossip, press reports, direct experience and a tremulous gut. Some groups I know will come out technically ahead this year because they budgeted conservatively in January - reducing projections substantially from previous highs. Others with cock-eyed fiscal years, poor forecasting or both are showing significant losses in two calendar years running.

Though I can't prove it I truly believe it will get at least a bit worse before it gets better. In past recessions what I saw was philanthropy as a lagging indicator - meaning it plopped after the rest of the economy and a leading indicator in the recovery - coming out of the swoon sooner. If I'm right for 2010 charities will have to be even more diligent in setting expectations and in assuring fiscal prudence. If I'm wrong they will not be hurt by being careful.

A few thoughts:
  • During the troubles we have heard people urge like nonprofits to merge to save money. Horse pucky. Nonprofits have trouble merging in the best of times when both parties bring strong balance sheets and profit and loss statements to the table. In these times one party is likely to be much weaker than the other and the acquiring organization may be taking on trouble. Ergo: if you're hurting look at a possible merger. But more realistically get your boards to concentrate on rebuilding the balance sheet and improving the P. and L. from the inside out. The frog won't turn into a prince. Better to plan for the princess turning into a frog.
  • When you buy a new car you get a better deal by bargaining up from the dealer's true cost rather than haggling down from his posted list price. That's how I think you should be looking at your organization. Assume the government money is not coming back any time soon. Individual and family foundation donors - contrary to Madoff and other exaggerations - have been less hurt by the recession than foundations and corporations. But many have been hurt. Plan for a modest comeback for individual giving in 2010.
  • Grant-making foundations are asset driven. The so-called market recovery has not yet come close to attaining previous highs. That means foundation assets haven't either. Multi-year grants are unlikely and if you're not already on their books the odds lengthen.
  • With corporations it will continue to be pick and play. Big banks, investment houses, oil and many entertainment companies are doing well. Retail and big box are mixed; communications, food, real estate are mostly sucking wind.
  • Until employment rebounds the economy will not fully recover. No one I read is forecasting a quick recovery.
In a word caution for 2010. Stick to the basics. Don't forget your galoshes.

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