The Age of Austerity: Don’t cut your nose off to spite your face!

Yesterday’s blog post introduced the idea that the non-profit sector might be entering into “The Age of Austerity” thanks in part to projected decreases in government funding. Today, we continue exploration of this topic by looking at what types of budget cuts are occurring and processes for responsible cutting.

First, I decided to ask my non-profit Tweeps on Twitter where they were making cuts and why certain things were off-limits. Needless to say, people were all over the place, and there was no consensus except around two things:

  • 100 percent of respondents said they would start with cutting administration and management expenses.
  • 100 percent of respondents also said they would start with facility maintenance cuts.

After an informal survey of my Tweeps, I did a little research using my best friend “Mr. Google,” where I found a recent article from the Wisconsin State Journal titled “‘New normal’: Nonprofits struggling with budget cuts“. Not surprisingly, a much more scientific survey than my informal Twitter poll found that approximately one-third of respondents plan on cutting or reducing programs services. This number is up from where it was in 2009, when 29 percent of respondents said they were cutting or reducing programs.

I suspect there are many non-profits who started cutting what they saw as “non-essential services” a few years ago. Now that there isn’t any more “fat to cut,” it is time to start cutting muscle.

It shouldn’t surprise anyone that more and more non-profits are getting to the brink of collapse, failure and contraction. We see signs of it in the Wisconsin State Journal article where they point out that smaller agencies have no cash reserves. We saw it in the Guidestar report that I referenced in yesterday’s blog post. I even wrote about it during my new year predictions blog series at the end of 2011 — “2012 Non-Profit Trends and Predictions: Contraction Continues“.

So, how should a non-profit organization go about making these tough decisions? Here are just a few tips:

  1. Always go back to your mission and ask: “how will this cut impact our ability to fulfill our mission?” Obviously, you would prioritize your cuts so the ones that affect mission the most are some of the last cuts you’d ever consider making.
  2. Are there things you can do to save money that are less painful than others? (e.g. Can you stretch a project (and its costs) out over a longer period of time? Can you re-bid certain services such as insurance or building maintenance?)
  3. Stop trying to hide these discussions from key donors. Invite your biggest supporters into the discussion so they can better understand how and why certain decisions are being made. For those not at the table, develop a communications plan to inform them of why certain cuts were made (not just that they were made). No one likes a surprise — especially donors. Remember, this is a way to get lots of smart people, who care about your mission from different backgrounds, around the table and focused on your problem. Please don’t approach this with a hidden agenda to secure more money from your supporters. They are surely able to see through this, and it’ll feel disingenuous.

The bottom line is that non-profits who find themselves cutting services run the risk of harming their program outcomes and community impact. Once this happens and donors see it, fundraising dollars will start drying up, and you know what they say about being on a “slippery slope”. Next thing you know, you’re at the bottom of that hill and you’re going out of business.

Of course, there is a another road to take. Stop exclusively focusing on cuts-cuts-cuts and start focusing on engaging donors and fundraising activities. I’m not suggesting that you stop cutting. There are most likely smart cuts your agency can make, but I’m suggesting you do so while implementing an aggressive resource development plan.

In my research, I found an amazing white paper written by David Maddox of John Wiley & Sons which was reprinted with permission by The Grantsmanship Center. The paper was titled “Strategic Budget Cutting“. It really is an amazing resource with great ideas and process. I encourage you to check it out!

Is your agency in cost cutting mode? What are you cutting and what aren’t you cutting? It is easy to say “use your mission statement to filter these decisions,” but how have you effectively done that? If you are both cutting and trying to do more fundraising, have you had much success? Please use the comment box below and weigh-in with your thoughts because we can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

The Age of Austerity: What does that look like for non-profits?

I love to wake up on Sunday morning and watch the news shows. This past Sunday my favorite show — Meet the Press — hosted one of the Presidential debates for the Republican field. During that debate, one of the journalists or candidates used the phrase “Age of Austerity” in regards to government spending and programs.

I don’t know about you, but sometimes phrases just get stuck in my head, and I gnaw on them like a dog with a bone. This is what happened when I heard “Age of Austerity”. At first, I spent a lot of time processing what that looks like for government (e.g. more taxes to pay off accrued debt and reduction in services like police, fire and garbage). However, my mind quickly wandered to the non-profit sector and the questions started to snowball:

  • Could the non-profit sector be entering into an “Age of Austerity”?
  • What could this end up looking like for non-profits?
  • What could the societal consequences be when so many people rely upon non-profits to “fill the holes” in our social safety net (especially when government austerity likely means creating more holes in that safety net).
  • How many non-profits will tighten their belts to the point of going out of business because they can’t achieve their mission? And how many non-profits will look at merger opportunities?
  • Where will the cuts come from? Heck, most non-profits already stretch their resources too thin.

I believe that we might be on the brink of this “Age of Austerity” where donors demand more services, outcomes and impact with smaller and fewer contributions to pay for that demand. Consider the following few data points from Guidestar’s recent non-profit survey:

  • One-fifth [of survey respondents] projected decreases in operating budget for 2012 …
  • About half of survey respondents are facing declines in revenue from sources other than contributions (which includes government funding) or had less than three months of operating expenses in reserve. Similar percentages reported that their organizations rely on a limited number of funders, and more than half (52 percent), reported declining or flat philanthropic contributions.

Lots and lots of questions! LOL — Welcome to my world. However, the following question is the one that I’ve been stuck on for a few days:

Are some austerity measures better than others when trying to fulfill
your non-profit organization’s mission and achieve community impact?

I believe the answer is probably obvious — YES. However, I don’t believe there is any consensus around what cuts are better than others. For example, should an agency pull back on certain programs and focus more intentionally on core programming? Eliminate middle management and flatten the organization chart? Change executive leadership and hire a less experienced/less costly who might have more upside in the long-term? Reduce the size of the fundraising department?

In an effort to find some clarity, I’m going to ask my Tweeps and other social media friends to weigh-in with their thoughts. I’ll report back tomorrow on what I find out. Of course, you are very much encouraged to use the comment box (see below) and share your thoughts.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847