How to operate in a down market

Widespread economic weakness presents a particular set of challenges for nonprofit organizations. When the economy falters, many nonprofits experience both reduced cash inflows and rising demand for services. This is particularly true for organizations that provide food, housing and job-search support.

Even if you’ve built up reserves for such situations, you can’t depend on them to last a long recession. What then can your organization do to avoid getting caught in the crunch?

Manage your investments

If you cringe when your monthly or quarterly investment statements show that your organization lost more than it contributed last month, you’re not alone. Unfortunately, this is often the case in a bear market.

What’s important to remember about your investments, particularly if they’re in permanently restricted endowment funds, is that they exist to preserve your organization’s longevity. The funds are in your investment account in perpetuity. While it may seem like those investments are losing a lot of money, those losses are, in fact, unrealized. Until you actually sell the investments, those losses aren’t real — and can, and likely will be, recovered when the market bounces back.

Nonetheless, it’s prudent to meet with your financial advisor and ensure that your investments are well-diversified among stocks, bonds, cash and other securities, according to your organization’s investment goals and risk tolerance. You don’t want all of your eggs in one basket — for example, invested in the stock of several companies. If the equities market tanks, for example, your endowment funds could be wiped out.

Take a look at your organization’s formal investment policy, particularly if it hasn’t been reviewed and revised in a while. Ensure that it reflects not only changes in the economy, but changes to your organization as well.

Monitor financial results

Your bookkeeper or accountant may provide financial results for monitoring your cash position, revenue intake and expenditures on a monthly or quarterly basis. Consider bumping up the frequency of these reports, and request them weekly or biweekly. By monitoring your financial results more often, your organization can react quickly to cash crises or drastic revenue declines by cutting expenditures pronto.

Ensure your bookkeeper or accountant understands your need for accurate and timely financial information, and be sure they keep up with bookkeeping daily. That way they won’t have to spend much extra time when reports are needed.

Pinpoint where to cut

You’ll want to get feedback from your staff on where you can save money on an ongoing basis — and begin right away. It’s wise to initiate a hiring freeze — just make sure that you think it through. For example, if your marketing director resigns, now may not be the time to forgo that important position that can bring new revenue to your organization.

Likewise, you’ll want to halt purchasing except for items you presently need. If, for example, you ax your monthly office supply order and buy items on an as-needed basis, you might benefit more from that cash preservation than from quantity discounts. Or, suspending the search for a permanent employee and using temporary help may be less costly in the short run, which may make sense if you’re focused on today’s cash position.

Also take a look at your budget. Does it provide for inflationary increases or set-asides for future payments? Now may be the time to eliminate both.

The public is aware of budget pressures facing all organizations — businesses as well as nonprofits. So communicate with your donors, supporters and the community about the difficulties facing your not-for-profit. Give them the facts, particularly when you can quantify the effects of smaller contributions on your future program services.

Turn to your peers

You and your organization are not in this alone. Contact other nonprofits and brainstorm with their leaders on how to get through these tough times. Your conversations may lead to some great ideas — or even collaboration. And remember, working through an economic downturn will only make your organization stronger. •