When Money Doesn’t Grow on Trees Anymore!
Research Paper
BUS 642 When Money Doesn’t Grow on Trees Anymore! The economic downturn in the United States has been intensifying every month since September 2008, and it is having significant impacts on numerous nonprofit organizations (NPOs). It is now clear that this financial crisis is more severe than anything we have experienced in over 50 years; it is affecting every sector of the economy. Managers of NPOs are facing numerous obstacles while having to face an increase in the vital services they provide to the public. The most critical issue is the lack of funding. The effects of the economic recession are spurring NPO leaders and their funders to create and apply innovative fundraising projects, collaborate together and to deeply analyze federal packages and plans for support. Although raising funds in today's tight economy is a challenge, some nonprofits are doing better than others. Organizations that are doing well have numerous amounts of revenue sources and many ways for donors to give, they spend more time and personal effort in building relationships with their donors, have refocused on the importance of developing staff, resources, and programs, and are simply looking to do more, not less (Borning, 2010). NPOs have suffered from the downturn in 2008 and 2009 but the fact is even tougher financial times have come since then for many nonprofit organizations, especially larger organizations that rely heavily on government grants and contracts (Kerr, 2010).
Fifteen regional NPO agencies were surveyed with open ended questions about the challenges of surviving the weak economy for the last four years. In the research, I used syntactical units because they are small and reliable units used in analyzing (Cooper and Schindler,2011). Syntactical units are words, phrases and sentences. Of the 15 respondents the answers to what is the biggest challenge you have faced in the last four years: 100% answered the lack of money due to cuts in governmental funding and cuts in unrestricted spending.
The nonprofit sector hears about the problems foundations are having with their investment portfolios daily. NPOs are constantly focusing on raising funds from new donors who just seemed tapped out. Large donors seemed to have disappeared, budget cuts are deep and the end seems near for all NPOs (Kerr, 2010). NPOs need fundraising ideas that can be implemented easily and inexpensively. New fundraising ideas will bring in new funders and create more awareness about the NPO. According to interviewees one basic fundraising idea is to find an idea that you can “sell” all year long. People like to give but not everyone is capable of a major gift. NPOs can help small donors contribute by selling an item they can also use. In Statesboro, Georgia the local baseball teams raise the baseball organizations’ revenue by selling $10 discount gift cards to local neighbors. The cards are good for the entire year. Kids get the discount gift cards at the beginning of the season and sell as many as ten at church the first Sunday after the discount cards come in (T. Chapman, personal communication, October 9, 2012).
Using annual special events can be profitable to struggling NPOs today. Nationally, NPOs generate an estimated $40 billion annually from special events (Borning, 2010). Maximizing special events opportunities is crucial to a NPO because it is reflected that special events can make up 15-20% of all fundraising (Borning, 2010). Well managed events benefit your organization far beyond the money they raise. Participation in events fosters a sense of community and commitment to your organization. What NPOs gain from a successful special event leads to greater volunteer involvement and more donations in the future (Borning, 2010). One new fundraising challenge that faces NPOs is the creation of long-tail charities (Anonymous, 2010). Long-tail charities are allowing more people to donate in small amounts but some experts believe that NPO leaders should, “Pay attention to small contributions, [because] that's where [their] gains are most likely to occur” (Borning, 2010). Some fundraising tips that successful NPOs practice include focusing on lists exchanges, narrowing in on your highest value donors, gang printing and reducing your postage costs (Anonymous, 2010). Exchanging a mailing list rather than renting one to acquire new donors has two benefits. It’s cheaper to exchange a name than to rent it and exchanging names usually give you better results than using names in rentals. The names on an exchanged list are filled with donors who’ve shown they enjoy giving to a cause like yours. If you favor exchange lists over rentals in your merge/purge, you may find your continuation rental lists aren’t paying their way after duplicating out the names that are already on your exchange partners’ lists (Anonymous, 2010). Gang printing is simply printing in larger quantities, which can save you thousands of dollars (T. Chapman, personal communication, October 9, 2012). Also you can reduce your postage expenses by making sure your NPO is taking the fullest possible advantage of postal discounts. Check with the post office regularly to achieve the best nonprofit rates to get even lower postage and faster delivery rates (Anonymous, 2010). It can be tempting to mail your entire file at nonprofit rates or skimp on personalization to cut down on costs. Only 10 to 20 percent of the core names in your lists generate most of your net revenue (T. Chapman, personal communication, October 9, 2012). By paying for first-class postage you can make sure these important donors get your mail. You should also invest in inspiring them to respond, either with increased personalization or by paying return postage. Don’t make the mistake of cutting corners in your communications with your most valuable donors (Anonymous, 2010). Nonprofits should be looking for ways to increase their impact at this time while also sharing expenses to get more bang for the buck. There is no better way than forming a collaborative partnership to accomplish this goal. One way NPOs are raising more funds in this limping economy is by banding together and creating a collaborative, non-competitive effort to raise or obtain funds from local governments (Schneider, 2009).
Funding sources will be excited about the prospect of increasing the NPO’s footprint while lowering cost. How can this be done? Collaborative partnerships must have personal synergy to pull this off. Form an agreement that spells out the management, programs and areas that will survive the merger. Everyone in management and on the board of directors must be on board for this to be successful. These type arrangements can be done quickly, but communication with donors is key to making it a smooth transition (Schneider, 2009).
Form a committee that is comprised of top executives and the board of both organizations and have a weekend brainstorming session on fundraising ideas. Make decisions about the fundraisers and the future. It will improve the synergy and is a great team building exercise to start the merger. The fundraising ideas that will come from this retreat will help to solidify the nonprofit organization's future in this recession (Schneider, 2009).
The especially tough city and county budgets prompted numerous local NPOs that provide human services to band together in one community under the banner of "United for Funding" (Schneider, 2009). They argued that financial support of services now would prevent larger public costs later for the local government. The approach prevented the agencies from competing against each other before the County Board and City Council. The county ended up cutting funding for 2010 by a small percentage, but the city managed to keep funding at 2009 levels (Schneider, 2009).
According to the, Journal of Management Development, “federal support to non-profits, outside of Medicare and Medicaid, has declined by approximately 25 percent [since the early] 1980s” (Shamima, 2005). NPOs are competing more and more with for-profits for government grants and contracts. The author explains that, “at the same time non-profits are moving into activities that have previously been the domain of for-profit firms, private firms are expanding into traditionally non-profit area" (Shamima, 2005). A clear example is the private health clubs in competition with YMCA. Another example is the day care service sector. "The share of daycare jobs dropped from 52 to 38 percent between 1982 to 1997, a decline of some 27 percent" according to Shamima (2005).
For some nonprofits, the federal economic stimulus program was made to order. Some organization wants the package to provide greater tax support for charitable giving and thereby to complement private charity with public charity. We do this already with charitable tax receipts, but could do more. If this were a part of the federal government's stimulus package it would be great, although even a dramatic increase in tax credits for charitable donations may have little impact on individuals who are deeply concerned about their own financial well-being (Gibbins, 2009).
In a recent survey of 800 U.S.-based non-profits, 75 percent reported feeling the effects of the downturn, with more than half already experiencing significant cuts in funding from government sources (Magazine, 2009). These NPOs are struggling with more than 50% having less than three months of operating funds on hand, and 75% cannot make it six months on existing cash reserves (Magazine, 2009). Some “green” NPOs believe that the recession provides an “opportunity to connect the economic stimulus to environmental matters" (Magazine, 2009). The Obama administration is encouraging development of green technologies and services, while aiming to leverage environmental progress for an overall economic benefit (Magazine, 2009).
Donations to United States’ charities reached an estimated $307.65 billion in 2008, according to the Giving USA Foundation (Nichols, 2010). Seventy five percent of that money came from individuals, seven percent from charitable bequests, five percent from corporations and thirteen percent from foundation grants; however, almost half the country's charities had received less than $25,000 a year (Nichols, 2010).
The Obama-Biden plan calls for the federal government to become an investor in social entrepreneurship, encouraging nonprofit innovation "by identifying programs that work and expanding them to other markets" (Todd, 2009). Obama-Biden wants to use the Corporation for National and Community Service, the headquarters of AmeriCorps VISTA and other volunteer programs, as a platform for creating a social entrepreneurship agency to promote accountability, improve the coordination of federal programs supporting nonprofits, and streamline the process by which nonprofits obtain federal grants and contracts (Todd, 2009).
One of the challenges nonprofits have faced for years is the fact that corporate and foundation supporters are reluctant to provide grants to build NPO infrastructures and for operational funds (Todd, 2009). Obama-Biden envisions the new social entrepreneurship agency making such grants. By passing the bipartisan Serve America Act, the government wants to put 250,000 Americans a year to work in national and community service. This legislation, endorsed by both President Obama and his 2008 opponent John McCain, and co-sponsored by Senators Edward Kennedy, Orrin Hatch, and 20 other senators from both parties, expands opportunities for individuals of all ages to serve, from young people to working adults to retirees. The bill establishes a tax incentive for employers who allow employees to take paid leave for full-time service. The bill creates “Encore Fellowships” to help retirees who wish to transition to longer-term public service, establishes a “Volunteer Generation Fund” to help nonprofit organizations recruit, train, and deploy more volunteers to meet increasing local community needs, and provides more visibility and a network of community solutions funds to support social entrepreneurs (Reed, 2009).
NPOs are also being affected directly by their own state governments because of their shockwave from federal cuts. For example, Hawaii has proposed a one percent tax on charities, Kansas is considering making nonprofits pay sales taxes and Pennsylvania is thinking about removing a property tax break for charities, The New York Times reported (Nichols, 2010). Also, in a closely watched court battle, an Illinois hospital lost its property tax break as nonprofit hospitals come under pressure to justify the breaks they get (Nichols, 2010). If states are pulling back their funds then how are the smaller, local NPOs going to keep providing core services to a growing, demanding population?
Nichols (2010) stated the obvious point that, “The silver lining is that maybe there are too many super small organizations. But I also think some really wonderful groups could be closing their doors". According to the Social Finance source, the demand for services continues to rise during this economic downturn (Kerr, 2010). Seventy seven percent of human and social service organizations surveyed said that the recession was having an impact on their programs and services (Kerr, 2010). Most Youth shelters, services for the homeless, seniors’ organizations, family counseling centers, and food security organizations face growing pressures in many communities in Ontario (Kerr, 2010). Food banks reported an average 25% increase in demand across Ontario (Kerr, 2010). United Way saw a 68 percent increase during the past year in the number of calls for basic needs such as securing food, shelter, and warm clothing, and is receiving 10,000 to 15,000 more calls every month compared to 2007 (Nichols, 2010).
The process decision making model is an appropriate model to use when solving these types of funding organizational problems. According to Harrison (1993), “[The process model has] generally subjective probabilities, pay offs, selective use of computation and compromise, [is on the] long-term horizon and a highly structured process” (Harrison, 1993). The solution demands a long term plan, will pay off with higher revenue streams, is selective in compromising and has to be structured to be a real strategic and successful financial plan. Clearly, with the use of decision making models a NPO can make better strategic plans, maximize its capability to raise revenue streams, develop a better analysis of what the issues are, determine which issues need to have immediate and/or long term attention and which could be determined by assisting staff (Harrison,1993). Successful, local and state wide NPOs actually hire mediators to come on site to help with decision making. One model used often is the SWOT analysis. During a SWOT analysis a NPO will evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a fundraising plan (Armstrong, 2010).
The uncertain economy offers both NPOs and their funders an opportunity to reorganize themselves for greater synergy and impact to not just survive the recession, but emerge as stronger, more vital and more relevant community resources when the economy someday rebounds. Managers of NPOs face numerous obstacles while still providing core public services to a rising amount of basic, demanding citizens. With the current economic downturn and the increase in demand for those vital services, the lack of funding is one of the most critical issues facing NPOs today. NPOs have to beef up their fundraising efforts, collaborate with other agencies and research the advantages of federal plans and programs in order to stay above water and weather the economic storm. References
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