Once a non-profit’s leadership has a vision for the future, the Board and ED can develop plans for getting through the next year or so.  One technique several EDs use for serious discussions about the short-term is financial scenario planning.  This approach is good for several reasons:

• It enables leadership to consider several real, possible 12-18 month financial  futures simultaneously without having to lock in on one budget (important given the uncertain times)
• By discussing several detailed possibilities before having to make decisions, leaders can create a framework within which the staff can act quickly once the financial picture clears, facilitating a nimble response to the financial environment
• By talking about more than one possible future, leadership can discuss what to do if the bottom falls out of their funding streams.  That scenario is psychologically very difficult to talk about if it is the only option on the table

Here’s my suggested approach to financial scenario planning, using  a few basic steps:

1. Select a revenue projection for each revenue stream for the 12-18 month future that you believe is likely (make it real, not overly optimistic) – this is the basis for your first scenario
2. Next, reduce your revenue projection by 20-25% (the reduction need not occur evenly across all revenue sources) – this is your second scenario
3. Finally, try to imagine complete disaster and reduce your revenue projection by at least 40% – this becomes your third scenario
4. Next, for each scenario make program and staffing plans for what you will do in each case – and make sure you consider the impact of any restrictions on funding streams)
5. After making your implementation plans for each scenario, consider the impact on your projected long-term vision and your future core programs – and make adjustments if you need to position yourself differently

Even though you will probably not be directly on target with each of your projections, by using this approach you will have prepared yourself for a range of real possibilities before anything happens.

The Nonprofits Assistance Fund also has an excellent scenario planning worksheet for nonprofits.

What planning techniques or tools are you using to prepare for the next 12-18 months?

Foundation endowments are not worth what they were a few years ago and are not generating the same level of returns.  Many foundations determine the amount they will give away each year on a rolling three-year average of the value of their endowment.  So even as investments (stocks, bonds, real estate) start to rise, the amount foundations can give away lags behind the market recovery.

Foundations are also changing the ways they typically grant funds in response to a smaller pot of money.  Three typical responses are:

• Cut funding to all grantees across the board by the same amount
• Focus the funding on a few targeted areas where the foundation wants to make a difference and stop funding the rest
• Do a combination of the above strategies

As for individual giving, it has remained somewhat flat (an overall 3% decline) during this past year.  What makes this statistic somewhat misleading is where the decline has occurred.  Giving has continued to be flat or, in some instances, growing with religious institutions. Translation: the decline has been deeper in the rest of the nonprofit sector.

One problem area is with large donors who have reduced their giving because it has typically come from their investments (which are down) rather than from their current income.  This decline in investment gifts (I would guess that there is a similar trend with planned giving gifts) has hit nonprofits hard.

Finally, government budgets are being stretched to the limit and annual contracts with nonprofits are necessarily less.  One ED complained, “They want me to do more with less money, as if I have a bunch of reserves somewhere!”   This last comment speaks to the perfect storm.  At the same time funding is down, the need for services is on the rise.

Given the current funding environment for nonprofits, the million dollar question facing those in the leadership hot seat is: “What should we do with resources down and demand for our services as great as it has ever been?”

The answer, as I often find, may be counter-intuitive.  While many are hunkering down, sticking to their knitting, and hoping that the perfect storm will pass and they can come out the other side, I think that an organization may be able to actually attract resources at this time by being bold, standing up and calling attention to themselves.

How to be bold?  Here are three things I think the successful nonprofit needs to do to distinguish itself to funders and investors:

1. Show that your organization’s work is making an important difference in the world. This means you need to have the capacity to document what outcomes are being achieved through your efforts, not just what you hope to achieve or what activities are performed.  If you have been doing some outcome evaluation all along, you are well positioned to make a strong case for getting more resources.  If you do not have this information related to your programs, start compiling and analyzing data as soon as possible.  Don’t forget that sometimes you have the information available; you just have not pulled it together.  So you may not be starting from scratch.  One nonprofit I work with does an outcome study once a quarter and extrapolates from that study to identify outcome numbers.  This saves them from having to count outcomes all the time.
2. Demonstrate that your organization is relevant today. This means that you are not living on past relevance, but that you are a good fit with the issues that people are facing today.  To demonstrate this you will need to show a considerable demand for what you do among a constituency in need.  The need that your organization is addressing should be widely recognized, understood, and significant.  This will make your case for being relevant powerful.  To illustrate your relevance you can show that you are filling a gap that others are not meeting or that you are addressing an issue in a unique way compared to others.  One ED told me that in order to prove relevance, he pulled together an advisory group of clients/customers to make certain that he was always addressing their most important needs.
3. Prove that you are flexible enough to change in response to your environment. This means that you are willing to constantly look at what you do and how you do it, and consider doing things differently.  An organization that is willing to refine its program model(s) on a regular basis in order to provide services as efficiently and effectively as possible, demonstrates that board and staff leadership is focusing on accomplishing its mission and takes very seriously its stewardship responsibilities. 

If an organization shows that it pays attention to the above, it will distinguish itself in the eyes of investors who have to make difficult decisions about where to put their precious money.

Does this fit with your view of what investors are thinking?