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Strategies to proactively assess the impact of the growing recession on your organization
By Betty Ferreira
February 2, 2009

Wherever you turn these days, there is no escaping the talk of financial doom and gloom. From newspaper articles to television news reports, from politicians and economists to the general public, the economic downturn and its impending consequences are on everyone’s minds and lips.
So what is the impact of this growing recession for Canadian nonprofit organizations? There’s no question that a global recession abounds and that nonprofit organizations in Canada will likely face financial challenges in the near future. In fact, we know that the Canadian economy often mimics the lows of our neighbours to the south and that our economy has already started to feel the impact of the US recession.
Adopting precautions and a leaner approach is certainly in order. Organizations need to ensure that they will be able to continue to implement projects, programs, and services now and when the true force of the recession impacts Canada.
Plan now
What’s critical at this stage is for nonprofits to begin anticipating and planning for the growing recession by taking a cautious, proactive, and informed approach.
While we do not advocate that organizations panic and start to immediately cut budgets or services, executive directors should take the time to strategically assess the type of potential impact and the variety of ways they can mitigate against it - proactively. Only in this way can they ensure delivery of programs and services to meet their existing demand, as well as the potentially increased demand because of the economic downturn.
This article provides you with a decision-making framework that will help you to assess the impact of the growing recession on your organization. In Leaner times call for leaner measures, I will provide you with 15 tips that you can use immediately to implement leaner measures in these leaner times.
Increased or decreased donations in recessions?
Organizations should be careful when reading overly optimistic stories stating that charities need not be concerned because tough times influence an increase in philanthropic behaviour, and thus assuming that this increase in donations will offset the potential decrease in funding. Yes, some research indicates that during the recession of the nineties, a sub-sector of charities - food banks, for example - experienced donor increases. However, unrealistic expectations could prove dangerous to nonprofits that aren’t top-of-mind for the average Canadian during a time of recession.
Case in point: during that previous recession, some donors who normally gave to the arts or culture, gave to food banks instead. Empathetic to the increased demand for services such as food banks, many Canadians shifted their philanthropic focus to organizations that were likely to see an increased demand for their services due to the impact of the recession.
This empathy for fellow Canadians shifted several donor relationships and thus caused some organizations to gain while other nonprofit organizations saw decreases in donations from the general public. In addition, it is unclear if the net increase in donations to these nonprofit organizations sufficiently covered the increased cost of providing services to the larger number of people accessing these services.
Be proactive
With many organizations approaching a new fiscal year on April 1st, this last fiscal quarter of 2008-2009 can be used to proactively plan for next year and the year after. My recommendations are to assess your situation, do it now, make a plan based on a careful assessment and involve your management team in the discussions, and follow that plan. Proactive steps today will help you manage the impact of any potential decreases in funding.
Steps to take to proactively assess your situation

STEP 1. Assess if, and how, your organization will be impacted by the recession.

In assessing the impact of the growing recession on your nonprofit organization, you may first want to assess the likelihood for the decrease in funding, while also assessing the potential increased demand for services.
Is your organization likely to have an increased demand for services? Is your organization likely to have a decrease in funding from your main funders and donors? The answers to those two questions will assist you to understand the potential impact of the recession on your organization.

Chart 1 - How will your organization be impacted?

Organizations that expect to have an increased demand for services and a decrease in funding support are likely to be hardest hit. Organizations that have no change in the demand for services but are expecting a decrease in funding will be the second hardest hit, as will those organizations that experience an increased demand for services and no change in the funding they receives. The best situation to be in, of course, is to accurately assess that there will be no change in demand for services nor a decrease in funding.
STEP 2. More precisely assess the potential impact of the recession on your organization
After assessing the potential impact of the recession, organizations should more precisely assess the impact of the decreases in funding or increased demand for services in order to adjust their budgets and strategies.
The chart below will provide a framework that you can use now and throughout the coming months to more precisely assess the impact of the recession on your organization.
Chart 2 - Assess the potential impact of the recession
Note: Funding refers to revenue received from government (G), foundations (F), corporations (C) and individuals (I).

HOW WILL YOUR ORGANIZATION BE IMPACTED? ASSESS THE APPROPRIATE RESPONSE ASSESS THE FINANCIAL IMPACT TIPS FOR ASSESSING THE FULL IMPACT NOTES AND NEXT STEPS

a) No decrease in funding, AND no increase demand for services = no loss. No impact, no change necessary.
-
Build and/or keep a close relationship with your main funders and donors to proactively safeguard current funding and/or to assess any anticipated changes in funding due to the growing recession. Take advantage of the knowledge and put some of the actions into practice to: a) save for your rainy day, b) to save money and redistribute savings to your programs/services.

b) Decrease in funding, AND no increase in demand for services = loss. Budget cuts and/or restructuring are likely necessary – the degree is dependent upon the decrease in funding. Assess the decrease in funding from each source:
G: $/% ?
F: $/% ?
C: $/% ?
I: $/% ?

How much is the total estimated decrease in funding?

Add up the estimated decrease in funding from each source to understand the potential total impact of this loss in funding.
Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services.

Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.

c) No decrease in funding, AND an increase in demand for services = potential/likely financial loss. Budget cuts and/or restructuring are likely necessary – the degree is dependent upon the increase in the demand of services. Assess the estimated increase in demand for services. Base this amount on the estimated incremental cost to increase services (per person, per service, per hour, etc) and then multiply it by the total amount of the expected increase.
How much will each increment in increased services cost the organization?

Are you likely to receive more donations due to the recession?

Is the estimated increase in individual donations commensurate with the increased cost due to the increased demand in services?

Assess the variance between the estimated increase in services and the anticipated increase in donations.

Best to plan and work from a conservative estimate of the increase in donations and overestimate (vs. underestimate) the potential decrease in funding.
Donations may increase from individuals for some charities that assist people who are hardest hit by the recession. This increase may or may not cover the increase in individual donations.
Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services.
Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.

d) Decrease in funding AND an increase in demand for services = greatest amount of loss Budget cuts and restructuring are necessary – the degree is dependent upon the amount of the decrease in funding and the increase in demand for services. Assess the decrease in funding from each source:
G: $/% ?
F: $/% ?
C: $/% ?
I: $/% ?
PLUS
Increase demand in services will increase operating costs

How much will each increment in increased services cost the organization?

Is the increase in individual donations commensurate with the increased cost due to the increased demand in services?

How much is the total estimated decrease in funding?

Assess the variance between the estimated increase in services and the decrease in funding to assess the potential budget shortfall.
Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services.
Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.

Questions to ask when assessing the impact
The following list of questions will also assist you to further assess the potential decrease in funding from each source: government, foundations, corporations and individuals.
Re: corporations and foundations

Are you expecting to receive sponsorships, donations, or grants from corporations that have been heavily hit by the recession, such as those in the auto industry?

Are you expecting to receive a grants from a foundation whose fund invests in and has consequently been heavily hit by the decrease in the stock market?

Re: individual donations

Will Canadians feel more or less empathetic to your organization's cause during a recession?

Does your organization have brand recognition with the average Canadian?

Do you have a close relationship with your donors?
Fortunately, in Canada, we have the benefit of advanced hindsight. As we cautiously watch our American neighbours and their experiences, we not only gain invaluable insight, we also gain time. We need to use this advanced notice period to be as proactive and strategic as possible. So, if and when we experience the cutbacks in funding and donations as our American cousins are experiencing, we will be ready, with our eyes open, armed with realistic projections and a plan of action.
STEP 3. More tips to come.
For information on how to proactively restructure your budget and operations to prevent the need to cut positions or projects/programs or services in light of a decrease in potential funding, read Leaner times call for leaner measures. Here, you will learn 15 tips that you can use to implement leaner measures and safeguard your organization in a time of recession.
Betty Ferreira is the founder of ReStructure Non-Profit Consulting, which provides a variety of consulting services, including organizational/financial restructuring to the nonprofit sector, as well as providing outsourced human resources and accounting services. Betty can be reached at betty@restructure.ca or visit www.restructure.ca.

HOW WILL YOUR ORGANIZATION BE IMPACTED?	ASSESS THE APPROPRIATE RESPONSE	ASSESS THE FINANCIAL IMPACT	TIPS FOR ASSESSING THE FULL IMPACT	NOTES AND NEXT STEPS
a) No decrease in funding, AND no increase demand for services = no loss.	No impact, no change necessary.	-	Build and/or keep a close relationship with your main funders and donors to proactively safeguard current funding and/or to assess any anticipated changes in funding due to the growing recession.	Take advantage of the knowledge and put some of the actions into practice to: a) save for your rainy day, b) to save money and redistribute savings to your programs/services.
b) Decrease in funding, AND no increase in demand for services = loss.	Budget cuts and/or restructuring are likely necessary – the degree is dependent upon the decrease in funding.	Assess the decrease in funding from each source: G: $/% ? F: $/% ? C: $/% ? I: $/% ?	How much is the total estimated decrease in funding? Add up the estimated decrease in funding from each source to understand the potential total impact of this loss in funding.	Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services. Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.
c) No decrease in funding, AND an increase in demand for services = potential/likely financial loss.	Budget cuts and/or restructuring are likely necessary – the degree is dependent upon the increase in the demand of services.	Assess the estimated increase in demand for services. Base this amount on the estimated incremental cost to increase services (per person, per service, per hour, etc) and then multiply it by the total amount of the expected increase.	How much will each increment in increased services cost the organization? Are you likely to receive more donations due to the recession? Is the estimated increase in individual donations commensurate with the increased cost due to the increased demand in services? Assess the variance between the estimated increase in services and the anticipated increase in donations. Best to plan and work from a conservative estimate of the increase in donations and overestimate (vs. underestimate) the potential decrease in funding.	Donations may increase from individuals for some charities that assist people who are hardest hit by the recession. This increase may or may not cover the increase in individual donations. Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services. Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.
d) Decrease in funding AND an increase in demand for services = greatest amount of loss	Budget cuts and restructuring are necessary – the degree is dependent upon the amount of the decrease in funding and the increase in demand for services.	Assess the decrease in funding from each source: G: $/% ? F: $/% ? C: $/% ? I: $/% ? PLUS Increase demand in services will increase operating costs	How much will each increment in increased services cost the organization? Is the increase in individual donations commensurate with the increased cost due to the increased demand in services? How much is the total estimated decrease in funding? Assess the variance between the estimated increase in services and the decrease in funding to assess the potential budget shortfall.	Schedule a meeting with your management staff ASAP and start assessing potential ways in which the organization can streamline its operations without adversely impacting services. Read Leaner times call for leaner measures to learn about 15 tips that you can implement immediately to restructure your expenses without cutting positions or programs.