Controlling Our Futures

Posted by Laura Otten, Ph.D., Director on March 27th, 2020 in Thoughts & Commentary

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As I have listened this week to painful reports from executive directors and board presidents on layoffs, furloughs, skeletal staff, and mothballing organizations for unknown periods of time, much of my limited energy has gone to shaking my head in dismay.  My dismay is two-fold.  I am beyond sad that too many people are losing their livelihoods, as well as the source of their professional passion, and I am disheartened by how few learned the lessons from “the last time.” 

Yes, I am uncomfortable at this point of crisis to be thinking, and unknown to, “I told you so.”  That’s not part of my normal lexicon, so why would I pull it out in the greyest of times?  

Because nonprofits must learn and carry forward the important lessons from the bad times instead of forgetting them as soon as it seems the skies are brightening.  Because if nonprofits continue to ignore the fact that bad times will roll around again– simply because they always do–and don’t prepare for them during the good times, it will, as it has been, Groundhog Day all over again, with the only difference being that the interval in between is more than a night’s sleep. 

Ask yourself this question:  why didn’t we start building a reserve fund in 2009 or 2010?  Building a reserve fund starts with creating the policy for the fund, and policy starts by asking and answering a series of questions?  How many months of operating cash do you want to have on reserve?  Three? Six? Twelve?  (Keep in mind the expectation isn’t that you will, overnight, accumulate those funds.  The understanding, however, is that without the stated policy with that explicit goal, and everything else the policy will include, that reserve will never come to be.)   

How will you build that bank of operating funds?  Will it be through a campaign? Taking a percentage of surplus every year? Taking a percentage of every unrestricted gift above a certain amount?   

The options are plentiful; you just have to think of them, codify it and implement it.   

When and how can the reserve be tapped?  Is it just if the organization hits a bump in the road? A national crisis? The loss of a key income source?  What exactly will warrant dipping into that fund and will it need board approval?  Will it be the first resort for tough times, or the last, before or after tapping that line of credit?  When and how will the money have to be paid back to the fund?  Will you return to the practice that built the fund in the first place?  Will payback require a more aggressive repayment plan?  While a reserve fund is not a guarantee against ending up in dire straits, looking at closing down temporarily or permanently, it certainly can delay, if not in fact prevent, reaching that point. 

Here’s another question to ask yourself:  why didn’t we work harder at diversifying our sources of income after the Great Recession?  We have been banging the drum of the necessity of diversified income strategies for the organization as a whole and for each individual program for so long, that we’ve worn through too many lambskins.   

Fortunately, by  now, most people know this, at least at an intellectual level:  being overly dependent (and I put that at 51% or more) on one source of income–be it a recurring grant, government dollars, a key donor–is an unsound business model and puts sustainability in jeopardy.   

And, yet, too few have done enough–if anything–about it.  Why?  Why would you ignore something that you know threatens the ability to continue to do what you do?   

In part, because it is easy. It is easy to believe that this money that has always come to you will continue to do so. After all, isn’t past behavior the best indicator of future behavior?  But look around you.  How many funders have changed their giving priorities in the past ten years?  How many companies have shifted where, how, and how much of their dollars they give to charities?  How have governments changed how they bid and award grants and contracts?   

It is hard work to cultivate new streams of income, whether it is creating or expanding individual giving or developing earned income streams or cultivating relationships with new organized donors.  It takes work by both board and staff.  Sadly, too many in the former category deny this as part of their responsibility.  

It is time to stop talking about the importance of income diversification.  It is time to stop listening to the whines of board members who don’t like fundraising.  It is time for action. 

Since 2001, we have had three major events that have had an adverse impact on the world and our sector.  Each time, we have seen nonprofits fail, some never coming back, some coming back as shadows of their former selves.  One certainty is that these events will continue to happen, with some more dramatic than others.  We can’t prevent that from happening.  But we can and must do everything we can to put our organizations in as strong a position as possible for when the inevitable happens.  How many times can you find afford to find yourself in the same position, wondering if you will make it this time? 

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.