Nonprofits: Don't waste a good recession

Posted on January 16, 2012 by Rob Lane

By: Rob Lane, The Patterson Foundation Financial Thrivability Partner

Don't waste a good recession? That certainly seems to be making the most of a bad situation but that is exactly what any organization that will remain relevant must do. When times are good or great, much inefficiency can be masked by positive financial results.

I am reminded of a quote from Warren Buffett in 2008, “When the tide goes out you find out quickly who is not wearing a bathing suit.” I think it’s fair to say that the recession hit many nonprofits later than other organizations, but it may also be true that nonprofits are slower to come out of the recession than others. So for many, the tide is still out.

The business model for most nonprofits is composed of one or all of the following key sources of revenue: 1. Donations

2. Government Grants

3. Fee for service

4. Investment earnings

Since the real estate melt down and corresponding stock market crash of fall of 2008, we have seen the greatest financial correction of our life time. The primary cost for most nonprofits is payroll and related benefits -- about 70 percent. So, cost reductions very often entail reducing staff, which is painful. This is being done at a time when the very services provided by many nonprofits are needed most.

The ability to change and adapt is going to be critical in order to be effective and possibly to survive. Refusing to change only assures what we care about, the mission of the organization, is deprived of what it needs to survive.

One of The Patterson Foundation's key tenets is financial "thrive-ability." One important example of that is the Collaborative Restructuring Initiative through which we have seen organizations consider back office collaborations, joint programming and even mergers. This type of forward thinking is going to be critical in order to really thrive. So, as a leader of management, the board or as a concerned donor, ask some tough questions:

How have we looked for best practices in all the key areas of our organization to ensure we are performing at the top of our game?

Who could we be sharing resources with to allow us collectively to serve the needs of more people?

What we are doing is very important, but probably not unique. Who else does what we do? How can we learn from them?

How are we changing our revenue model?

If you have thoughts on other pertinent questions, please post them below.

  • Learn about these and other concepts used in TPF's approach to philanthropy.


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