NonProfits Challenged by Financial Crisis

Oct. 28, 2008— -- As Americans tighten their purse strings because of the financial crisis, nonprofit organizations are facing new woes.

The economic downturn has certainly created challenges for Josh Ruxin, who directs several projects in Rwanda that rely on donations.

A benefactor for a health center that's being built in Rwanda by one of Ruxin's organizations pulled out of the project because of money problems.

"It's a very challenging time," said Ruxin, founder and director of the Access Project in Rwanda. "I am fearful that there has been a fundamental loss of wealth that is not going to come back anytime soon."

Nonprofit organizations across the United States, whether their focus is domestic or international, are eyeing budget cuts. While it is still too early to assess the overall impact, a combination of factors is adding pressure to the already competitive nonprofit landscape.

With the volatility in the financial sector endowments have taken a hit. Government funding is also declining in many sectors and cost of capital continues to increase.

One of the biggest challenges that nonprofit organizations anticipate they will face is securing donations.

"There's a psychology that sets in in circumstances like this that people tend to spend less even when they can afford to spend more," said John Readey, a partner in the Kansas City office of law firm Bryan Cave LLP. "Some high-end clients are holding back this year. ... It's part of the general psychology of keeping your powder dry."

Changing Strategy

Small nonprofit organizations that specifically rely on small donor contributions face the toughest prospects in the current economic climate, said Edith Faulk, vice chairwoman of the Giving USA Foundation and chief executive of Chicago-based Campbell & Company, a fundraising consulting firm.

"Many donors are now having to make a choice between making a donation or putting food on the table," she said.

That means more organizations will be contending for large donors in a market that is already saturated and highly competitive. And even then, organizations will likely be competing for fewer dollars.

Analysts and nonprofit executives alike concur that foundations, and even high-net-worth individuals, will be looking less at donating to new projects, and are limiting their philanthropy to existing programs they support.

Even large nonprofits are not immune. Although they are likely to sustain themselves longer than their smaller counterparts, most large organizations have investments they rely on in addition to donations. If an endowment loses value, nonprofits have to look for alternative funding to make up the difference, which can be hard to attain in the tight donor market.

On the other hand, charities such as Access Project for Rwanda are viewing donors as investors and turning their not-for-profit ventures into profitable ones.

Ruxin once divided his time between private business sector development in Rwanda and the rest on health care projects, but now 80 percent of his work is focused on money-making projects that would yield monetary investments for his donors.

"The wake-up call is that there really should not be such a distinction between for-profit and not-for-profits," he added. "It is about survival of the fittest."

Nonprofits also need to be focused on donor retention rather than on chasing after new clients.

It is important to talk to the main donor base and try to hold on to the biggest donors, said Joyce Mitchell-Antoine, chief development officer at Planned Parenthood of North Carolina in Chapel Hill.

"This is unlike anything I've seen since I have been at this organization 11 years," she said. "People are very concerned, particularly those [of our] affiliates whose fundraising maps don't have as much expertise around the area of major gift fundraising."

Where nonprofit organizations are losing donor funding, they are hoping to gain more volunteers as demand for social services increase.

Investing in the Community

Demands for services that nonprofits provide, such as free health care and food, tend to increase in difficult economic times.

Many organizations have had to curtail their ambitious plans because of budget cuts and lower funding, upping the demand for volunteers.

But there's a bright lining of sorts to these storm clouds. Job losses -- which have been on the rise -- can also boost volunteer activities as people find more time to donate to charities.

"It does tend to be countercyclical," said Robert Rosenthal, director of communications at VolunteerMatch in San Francisco. "More people out of work can create an increase in volunteer activities as people determine they can give time. It's a great investment for them."

Tough financial times tend to raise awareness about community issues, Rosenthal added.

For many, volunteering is a way to replace donations. It also provides, in many cases, networking opportunities, especially for those people who have lost their jobs.

Volunteering has increased in recent years -- about 61 million people volunteered in their communities in 2007 -- and that trend is expected to stay resilient during the financial crisis.