Update on Effect of GFC on US Not for Profits

A Bridgespan longitudinal study in the US shows that Not for Profits are turning to much tougher measures than foreseen six months ago to cope with the economic downturn.

The updated research says the percentage of NFPs that have resorted to layoffs has increased, as has the percentage that has made broad-based program reductions and more organisations have drawn down their reserves.

However the study shows that sector leaders appear to be optimistic about the future. Almost half of the respondents reported that they believe their organisation will be on stronger financial footing in a year’s time.

These current findings follow on from results of a November study, in which the Bridgespan Group surveyed NFP leaders across the U.S. to find out how the economic downturn was affecting their organizations.

At the time, many organisations were struggling to meet increased demand for their services in the face of deep budget cuts. However, more than a third of the Not for Profits that had already experienced funding cuts were not reducing costs to manage through the downturn. Instead, they were trying to compensate by increasing fundraising capacity.

The updated research points out that much has changed in the U.S. since that initial research: There is a new President, a new budget, and a stimulus package of unprecedented magnitude.

Bridgespan’s follow-up survey took place in May 2009 to gauge the effects of these developments on Not for Profit organisations.

Here is a breakdown of the updated findings:
1: The financial situation for NFPs has worsened in the past six months, while the need for their services has increased, making it more important than ever for organisations to focus on their core programs.

Ninety-two percent of nonprofits responding to the May 2009 survey indicated they were experiencing the effects of the downturn, up from 75 percent in the November 2008 survey. Forty-nine percent reported that their financial situation had worsened in the past six months.

Small organisations (i.e., those with revenues less than $1 million) have been disproportionately affected by the downturn compared to medium and large organisations ($1 million to 10 million, and greater than $10 million, respectively). Seventy percent of the small organisations reported that their financial picture had worsened in the past six months, compared with 38 percent for medium and 41 percent for large organisations.

2: More organisations are tapping into reserves. Also, more NFP leaders are developing contingency plans, a key step that can help them respond purposefully when crises arise, and also prepare for better times ahead.

The percentage of organisations reporting that they have tapped into their reserves has increased from 19 percent to 33 percent over the past six months. One respondent said that in order to keep their strategic plan on track, they had dipped into 60 percent of their reserves.

3: The deepening recession has led more NFPs to lay off staff and reduce program activity, while taking action to protect core services and activities. The specific tactics used to cope with the downturn have varied by organization size. But now, more than ever, it is important to identify the people who matter most to an organisation, and to keep that group strong.

The results of both surveys indicate that whenever possible, NFPs have avoided cuts in programs and services, and attempted to compensate for revenue shortfalls by expanding fundraising capacity. However, as funding cuts have increased, NFPs increasingly have resorted to aggressive cost-cutting measures. The percentage reporting that they had implemented layoffs has increased from 28 percent to 41 percent since the last survey, and the percentage indicating they had reduced the level of activity across all programs has increased from 31 percent to 43 percent

4: Not for Profits increasingly have received relief via additional support from funders, which points to the value in NFPs forging close, transparent relationships with the individuals and organisations that support them. A sizable minority is counting on further assistance from the stimulus package. And almost half of the survey respondents expressed optimism about their organisation’s future financial health.

Some funders have stepped up their giving to meet the challenges brought on by the recession. While only 11 percent of organisations in the previous survey responded that selected funders had provided additional support as a result of the downturn, that number increased to 33 percent in this survey.
This trend highlights the importance of staying close to key funders.

The Bridgespan study concludes that tough times lead to tough choices, but there is a tangible opportunity for Not for Profits to emerge stronger and smarter.

The full report can be downloaded at www.bridgespan.org