April 23, 2014
   
Discipline Will Shape Nonprofits’ Success in 2010, Leaders Say

January 1, 2010 — Persistence, patience, due diligence, and balance are some watchwords that Massachusetts nonprofit leaders say organizations will do well to heed in 2010 while contending with increased demand for services in a volatile funding environment.

“For a sector which is already woefully under-capitalized, limited funding will be the number one challenge,” said Jonathan Spack, executive director of Boston-based Third Sector New England, which provides management and leadership resources to nonprofits.

“That said, I anticipate an intensification of the pressure nonprofits across the country have felt from funders to collaborate and/or merge, a trend driven more by the needs of the funders than by the needs of the constituents served by those nonprofits. I also expect many smaller nonprofits to have trouble retaining talented, experienced staff.”

William Pinakiewicz, New England director of the Nonprofit Finance Fund, which provides financial and advisory services to Massachusetts nonprofits, said, “Given the fragility and uncertainty in the economy, it appears that an anemic and comparatively jobless recovery may well be with us for a good part of 2010. This means that tax-supported government sources of revenue for nonprofits are likely to stagnate if not suffer further decreases as the state and local governments struggle to balance budgets.”

He added, “This also means that nonprofits’ expenses are likely to continue to rise as the increased need for their services continues in tough economic times.”

Margo Casey, executive director of North Shore United Way, concurred, noting, “Given the continuing unemployment numbers, I think nonprofits will continue to see a rise in need and caution from donors.”

Smaller Nonprofits Are at Particular Risk...

Spack said that small organizations, especially those which are dependent on one or two primary funding sources and have limited reserves, are likely to be at particular risk in 2010.

Casey agreed, observing that “The 'smarter' ones are looking to make affiliations or mergers with larger more stable nonprofits."

Pinakiewicz said that financial stress relating to the continuing economic downturn will put pressure on nonprofits “with exposure to the potential for ongoing revenue disruptions or decreases, high fixed-cost structures and balance sheets dominated by illiquid property, plant and equipment assets may be vulnerable to similar liquidity and cash flow pressures.”

That notwithstanding, Casey said her organization has seen “a large increase” in volunteers at nonprofit agencies, which is helping to offset a drop in funding or staff.

...while Others Are Poised to Do Well

Nonprofits likely to do well in the coming year are large groups with diversified revenue streams and healthy balance sheets and those with entrepreneurial, opportunistic leadership, according to Spack.

Casey agreed that diversified funding streams will be key to nonprofits’ ability to “weather the storm.”

Pinakiewicz said nonprofits that use the downturn as an opportunity to assess their mission focus and economic effectiveness of their business models and make strategic adjustments, on their own or in collaboration with other nonprofits and funders, are likely to flourish in 2010 and beyond.

He also said that nonprofits will be more likely to succeed if they:
  1. Use data-driven metrics to demonstrate the effectiveness and impact of their programs and services.
  2. Employ disciplined financial management processes for projecting, managing and reporting cash flow.
  3. Build and manage a balance sheet with a risk level appropriate for the operating risk inherent in their business models.
  4. Rely on cash reserves built during in the pre-recession years, and continue to manage them conservatively.
  5. Continue to manage to a break-even or small surplus level on an operating basis.
  6. Maintain a line of credit, and draw on it responsibly to supplement internal liquidity and cash flow management practices.
Pinakiewicz lauded the “creative and thoughtful strategies” that the Massachusetts foundation community has brought to bear to maintain the impact of available funding dollars, especially in light of drops in investment portfolio values.

“A good many foundations were able to maintain and, in some cases increase, their funding levels in 2009, in part due to the smoothing effect of the three-year rolling averages on investment earnings many foundations use to determine their funding payout levels,” he said. “However, when fiscal year 2009 is worked into these rolling averages, the dollar value of funding payout levels for a number foundations are likely to decrease.”

Recommended Management Practices

The three leaders also offered management advice, which they said nonprofits should consider adopting to help ensure organizational well-being in 2010.

Topping the list, Casey said, was to continue to manage efficiently, which, she noted, applies equally to any business.

Spack suggested the following:
  • Plan your budget carefully.
  • Diversify your funding.
  • Actively seek collaborations, lest they be forced upon you.
  • Explore new opportunities for earned revenue.
  • Treat your staff humanely; you need them now more than ever.
Pinakiewicz urged nonprofits that each program and service should support the core mission. This, he said, will let them make informed, strategic adjustments to their business models “to make them more effective agents of community support and positive social change.”

Spack and Casey agreed. Focusing on the mission first and foremost is the best action nonprofits can take to improve their individual capacity to fulfill their mission in 2010, according to Spack.

However, Spack, added, nonprofits should bear in mind that “preservation of the existing organizational structure is not the same thing as preservation of the mission.”

Finally, the three offered watchwords that should help guide nonprofits during the year ahead.

For Pinakiewicz, it was “balance.” Spack offered “creativity, persistence, determination, patience.” Casey proffered “due diligence for all.”

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