Guidestar’s Report on the Economy– A Wake Up Call not Just All Gloom

Guidestar has released the report of their June 2010 survey on the effects of the economy on the Nonprofit sector and the findings should provide a wake up call when we look past all the numbers. There were over 7000 respondents to this survey across a wide variety of size and types of organizations. Here are the highlights:

As is usually the case as funding for nonprofits declines the demand for services has increased. The impact of this trend is most serious this year in mental health and crisis interventions. The exception – as was the case reported in other studies in 2009 – are charities providing food and nutrition services. Although their demand has skyrocketed, their funding has actually increased. Just today I was talking with a nonprofit in this field whose demand and services have tripled in the last few years.

The sources of decline in funding are widespread and the breakdown is:

67% Individual giving – both fewer and reduced level of giving
40% Smaller foundation grants and corporate gifts
20% Government grants smaller and foundation grants discontinued
10% Government – grants discontinued and contracts smaller

In addition organizations that depend largely on government contracts are experiencing serious cash flow problems as payments are delayed and funding levels are being cut. My home state of New Jersey was singled out as one where nonprofits are expecting major cuts in funding.

So how are nonprofits coping with this gloomy picture? Here are the actions they are taking:

58% Reduction in services
50% Salary freeze
38% Layoffs
30% Hiring freeze
23% Reduction in benefits
21% Reduction in salary
12% Merger with another organization
32% Increase use of volunteers

In 2009 Paul Light predicted that the downturn in the economy could cause 100,000 nonprofits to fail and that mergers were an alternative that many should seek. Since then many people have been surprised that there haven’t been more mergers. As the recession lingers, many individuals are realizing that things are definitely not going back to the way they were and that they must personally retool, perhaps work in a new industry or acquire new skills and many need to adjust to a lower income even if they have a job.

This is true for nonprofits too. It is one thing to reduce services and staff for survival. That is happening. But more nonprofits need to really “retool.” It is time to think strategically. What should we be doing differently? Are there more efficient approaches? Are there opportunities to collaborate and enhance our services while cutting costs? How many nonprofit program spaces have significant amounts of time when the space isn’t used? How many competing services could be merged and enhanced while operating at lower cost? Hpw many programs need to have some new life breathe into them and updated to attract a new following? What about social entrepreneurship? What about starting for profit businesses to support the nonprofit services?

Let’s not let these kind of reports just be a confirmation of gloom. Let’s take them as a wake up call.