What Do You Need to Know to Adapt and Survive in this Economic Climate?

Nonprofit Finance Fund asked this question of 17 human services organizations who applied to take part in our NYC Community Resilience Fund (CRF), a $3.5 million initiative to help them find answers to this question. In the coming months, NFF will publish a series of online articles to share stories, insights and lessons from the initiative and to discuss the issues and questions that we heard across the sector (click here to read the second blog in this series, featuring the NYC Anti-Violence Project):

Is our business model viable? How can we go about improving our business model?
What can we do to invest in our long-term stability?
Are there any innovative strategies for generating earned income?
How do we know whether or not we should take on a grant or contract?
What’s the true cost of our services?
What would it look like if we were appropriately capitalized?

When NFF launched CRF In 2013, the Affordable Care Act, Superstorm Sandy, and a new City administration—not to mention the lingering effects of the recession—were sending shockwaves of change across the nonprofit community in New York City. Organizations struggled to keep up with ever-increasing demand from their clients, while navigating the financial challenges—and potential opportunities—generated by these shockwaves. Through our work with dozens of frontline organizations across the city, NFF saw that organizations were struggling to survive, let alone thrive, in these circumstances.

While the work we did directly with these organizations was important, equally important is sharing what we’ve learned with the broader community. The experiences of these organizations are likely to resonate with many others who provide basic needs to vulnerable communities. Through the upcoming blog series, organizations facing similar questions may find insight into how they might better navigate through their own shockwaves.

NYC Community Resilience Fund
The NYC Community Resilience Fund was designed to help 17 NYC human service nonprofits strengthen their ability to respond in an environment of constant change. NFF consultants worked with this dedicated group of nonprofit leaders to figure out how to better manage and strengthen their business models. We also made “change capital” grants to seven of these organizations, totaling $1.6 million that invests in the recipients’ ability to change and, in particular, generate and/or stabilize new revenue streams.

Differences and Commonalities in the Cohort
All 17 organizations within the cohort were majority government-funded but otherwise varied tremendously. Nonprofits were from all five boroughs, had budgets ranging from less than $1 million to $65 million, and provided services including transitional housing, youth programs, immigration counseling, foster care services, juvenile justice, elder care, healthcare for the uninsured and more.

Despite the differences within the cohort, these organizations display a number of commonalities:

Nonprofits primarily funded through government contracts are consumed with accounting to maximize reimbursement, but often don’t understand the true cost of their programs or service. As a result, nonprofit leaders often don’t know which contracts are truly detrimental to the financial stability of their organizations and, therefore, when to “walk away”. By knowing true costs, nonprofit leaders can be armed with data and make active decisions about contract terms that may be too burdensome to accept and that, in turn, can de-stabilize the whole organization and the services they provide. In an ideal world, government would pay the true cost of the vital services to the community for which they contract. But until then, nonprofit leaders need to actively decide which programs are core—and may require subsidy—and which may be too costly to support if they are not fully sustained by direct revenue.
In order to remain viable, many nonprofits feel forced to try new and sometimes risky revenue strategies, which can put them at even greater financial risk. The recession rattled many nonprofits into seeking new sources of revenue to grow programs, support existing activities and cover the gap between contracts and their cost. Whether by pursuing new avenues within traditional fundraising or by exploring a variety of earned income ventures, nonprofits are investing their time and money into strategies that carry financial risk, many without sufficient resources to implement the plan or protect the organization from negative results. This places additional burdens on leadership and organizational capacity.
Stable leadership teams that discuss financial issues consistently and transparently seem to weather the constant economic changes with greater ease. Within this post-recession era of constant change and challenging economic dynamics, we found leadership communication and consistency to be a key ingredient in successful adaptability. Management teams that could communicate clearly and consistently on pressing financial issues among themselves and with their boards were able to come to quick decisions based on data to improve their organization’s overall financial health.

Striving for Sustainability or Adaptability?
As we’ll discuss in the articles that follow in the coming months, today’s post-recession climate asks nonprofit leaders to think about survival in a new way. Organizations can’t rely on “tried-and-true” methods to sustain them financially. In fact, there may be no end-point called “sustainability”; there is certainly no one-size-fits-all business model, no magical strategy, and no everlasting solution to the problem of keeping our doors opened to support the community.

Observing our clients’ experiences in initiatives such as the NYC Community Resilience Fund, Nonprofit Finance Fund has shifted to focusing on a nonprofit’s “adaptive capacity”—its ability to manage and maintain stability in an era of constant change—rather than meeting a single definition of sustainability. We believe nonprofit leaders must learn to be more adaptable, able to make quick decisions about their programs, finances and business models grounded in the core mission but informed by data (financial and otherwise). It’s more important than ever that nonprofits use financial information when making organizational decisions about the programs that serve the community. Only in this way can nonprofits maintain their footing as the waves of change keep coming.