Wednesday, December 10, 2008

Difficult times now and in the future.

No eureka about the title of this post, I assume. Everyone (at least everyone who is paying attention) knows that we are screwed economically, and for a long time to come.

The past few weeks, I've fielded a dozen questions from audiences about how long the current recession/depression will last: "How far down the tunnel is the light?" "How long until fundraising turns around?" etc.

Here's my answer, with the understanding that I'm not an economist, just a mission-based business guy who tries to pay attention to the signals out there.

1. Don't believe anyone who is telling you the market is "bottoming". These people are NOT out in the country with the rest of us. They are in New York or the DC Beltway, and are playing "market model" games rather than looking around. I heard one say two days ago that: "Historically, recessions last 13 months, and we've been in this one 13 months, so things will turn around soon." What drivel. Also, many of the talking heads have a "horse in the race" ....for personal or political reasons, they need to be optimistic.

2. We're a long, long way from the bottom of the economy. Some small factoids from recent news: 40% of mortgages in the US are "under water" that is, the house is worth less than the debt on it. Has never happened--since the 1930's. 10% (yes, that's one in ten) Americans are either on or applying for food stamps. Never happened before ---there were no food stamps in the 30's.

3. Ask yourself--even if you haven't lost any income in your family---have you put off buying ANYTHING you would have a year ago? A toaster, a lawnmower, a night out on the town, a weekend getaway. Yeah, me too. Everyone is doing that, and that level of fear and inertia takes a LONG time to turn around. At the business level, no one is hiring if they can put it off (except health care and public schools), expansions are on hold....same symptom, just bigger bucks.

4. All the money the feds have pumped into the system hasn't loosened credit, or encouraged hiring. There are tons of profitable businesses who can't get loans, and thus are stalled, not hiring, not making donations to their regular charities.

I went through my list of observations on this a couple of days ago in Florida, and someone asked, "aren't you optimistic about anything in the economy? What about the price of gas?" My answer was no, $1.30 gas, while nice in the short term (and, understand, I'm REALLY happy about gas prices for people who are on the economic edge) is really an indicator that the recession is global--and will thus take even LONGER to turn around.

So, no. I don't see any light right now at all. Even Obama's infrastructure plans (which I fully support) will take 18 months to really have an effect. A good friend told me last night that he was at a board meeting of his firm in NYC this past week and that the economists presenting to them all agreed that the earliest the economy "might show some life" is the second half.....of 2010. And then the presenters added "but really, that's a guess. No one can really see a bottom to this yet."

OK, so it's bad and getting worse. What should you do at your nonprofit? There's a lot of things you can do now, and you need to start very, very soon.

First, get your board and staff together and review your mission....and its meaning. What does your mission tell you about your priorities, your focus, who you need to help the most. It all starts with mission, so start there.

Second, look at your income array. What percentage comes from large donors, or small, from foundations or government? Talk now (yes, get on the phone) with funders to keep on their radar and get a sense of what they know. Don't be offended if they don't tell you much, and remember that they are just as nervous as you are. Most people (most foundations, most governments) don't have a clue right now of how all this will shake out. But by calling, and being sympathetic to their plight, you stay on their minds in a good way.

After these calls give do some math. Look at your income array and play percentage games. Your result might look like this. The percentages are what you expect might be cut

  • State funds:
  • Program a: 20% within 60 days
  • Program b: 50% within 90 days
  • Program c: No change---entitlement funds
  • Foundation 1: No renewal for the third year
  • Foundation 2: 0% cut over the next 6 months, then who knows?
  • Donations: Already down 10%, expect another 10% over the next 6 months
  • Membership: Down 20% for the past three months, seems stable now.

This is just a sample to get you the idea. What you REALLy need to do is a best case, middle case, worst case scenario. And, here's the key BE CONSERVATIVE.
Then you can run both a budget and a cash flow for each scenario, and see where you are.

Speaking of cash flows, as people who come to my trainings know, CASH=OXYGEN. You need to run bi-weekly cash flow projections out six months, and update them every week or so. You HAVE to be on top of your cash position and projection in tough times.

NOW you have the information you need to start talking about cutting back, if your finances show that need, and for most of us, they do.

Remember, some cutting is symbolic, some not so much. No matter what your budget shows, cutting some small things (or, not spending what is perceived as unnessessary) is key. Thus, holiday parties right now should be tabled, or severely reduced. Some subscriptions or memberships might be cut, raises might be put on hold, etc. If you haven't already, start now with some reductions. It will help later on, both financially and politically.

Before I show you some resources, one more note: nonprofits spend about 85% of their funds on their staff. Thus significant cutbacks are always going to be about people. Always. This is very, very hard stuff. If your nonprofit is like 98% of the 501(c)(3)'s in the US and Canada, you are NOT overstaffed, and the people you employ are nearly always great people, people with families to feed, homes to pay for etc. This sucks. It will tear your heart out. Been there, done that, HATED it.

But remember this: Your job as a manager is about the organization's mission. You have to make tough choices to preserve as much well-provided mission as possible. So, start soon, and know I'm thinking about you.

Resources: My newsletter in September (doesn't that seem like a quaint, idyllic time already?) was on Budgeting in a Recession.

My Decision Tree to help you make good, mission-based decisions, is free here.

In Nonprofit Stewardship, there is an entire chapter on leading in Tough Financial Times.

Here's an excellent piece from About.com. Thanks to Joanne Fritz.

Finally, remember this is a marathon, not a sprint. Start now, keep at this, and keep focused on the people your mission serves as your ultimate inspiration.

And, keep checking back here for more ideas as we move forward. If you have great resources you want to post, let me know and I'll share them.

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