As the Nonprofit Sector Faces Recession, Nonprofit Finance Fund Outlines 5 Recommendations...

As the Nonprofit Sector Faces Recession, Nonprofit Finance Fund Outlines 5
Recommendations to Prepare for Economic Downturn

How 'Fake It Until You Make It' Mentality and Lack of a Financial Cushion Can
Cripple Nonprofits;

Data: Downturn Ripples Felt Years Later by Nonprofits, With Half of
Government-Backed Nonprofits Still in the Red Three Years After 9-11.

NEW YORK, Feb. 13 /PRNewswire-USNewswire/ -- Nonprofits, funders and donors
facing a possible recession would do well to draw lessons from the challenging
economic period that the sector went through in 2001, made worse by 9-11,
according to Nonprofit Finance Fund President and CEO Clara Miller. The NFF
head outlined five recommendations for what nonprofits can do now to ease the
sting of any current and future recessions.

An analysis of new data from over 6,500 mid-sized nonprofits released today by
NFF reveals that it took years for many nonprofits to recover from the
economic downturn in the U.S. that started in 2001. The number of all
nonprofits in the sample that suffered deficits grew by 20 percent in fiscal
year 2001, and had not returned to 2000 levels by 2005. Over 40 percent of the
nonprofits reported a deficit in 2001, as well as in the two years immediately
thereafter. From 2001-2003, nonprofit expenses, in general, grew at a faster
pace than revenue, suggesting that organizations were providing more services
than they could afford in response to increased need from their
constituencies. It was not until 2004 that expense growth rates among the
nonprofits reflected a full adjustment to the lower revenue growth rates. More
of the organizations that are entirely supported by government feel the pinch
during challenging economic times than those with even 10 percent of funding
from another source. Half of the entirely government-financed organizations
reported deficits in 2002 and 2003.

Clara Miller, president and CEO, Nonprofit Finance Fund, said: "Nonprofits
that choose to learn from the challenges that the sector experienced during
the last recession will be well positioned to deal with a new one. What
nonprofits do now will have consequences that resonate far beyond the bottom
lines of the organizations. The expected economic downturn will pose serious
challenges for clients that rely on the services of nonprofits, particularly
those in low-income communities. With fewer dollars flowing into the sector,
nonprofits face the possibility of being forced to cut services at a time of
increased need. Philanthropists, government, and nonprofit organizations will
need to work together much more closely to ensure ongoing services for at-risk
populations."

Dr. William J. Eberwein, president and founder, Children's Choice: "With the
perfect storm for nonprofits coming, we all need to prepare effectively.
Child welfare numbers increase when the economy is going south. Things will
be particularly challenging in many rural communities, which fare particularly
poorly in these economic conditions. Much of the funding these groups receive
comes from government cost-reimbursement contracts. They can't build a
reserve to weather hard times, as the government expects to take back any
monies that aren't spent. It would be ideal if the government could ease up
on this policy, particularly during times of economic hardship."

FIVE RECOMMENDATIONS FOR NONPROFITS IN A RECESSION

1. Nonprofits heading into recession need to avoid "strong, silent behavior"
and sustained spending, which has been a hallmark of the industry for more
than a decade, and continues to make nonprofits weaker, not stronger. Miller
explained: "We are entering a period of financial crisis, and we can't afford
to 'fake it until we make it.' This heroic type of behavior does no one any
good in the long run. Nonprofits need to share worries with boards and
funders, and enlist their support in getting ready for a possible recession.
Organizations need to try to get by on decreased revenue and programmatic
spending for a year or two in light of new financial indicators, before moving
forward with challenging expenses."

2. Nonprofits should engage with board members and funders in contingency
planning on what is likely to happen to clients and funders during a
recession.Clara Miller said: "The end clients are especially important, and
face the greatest risk: many of the populations served by nonprofits are
fragile, needy people, whose need increases in times of financial stress. The
goal of surviving a recession or economic recession is not to stay afloat for
the sake of staying in business, but rather to make sure you're around to keep
serving the public, particularly in times of increased demand for services.
It's important to get board members and funders to go public with that message
-- that the organization's survival is important because of the clients it
serves."

3. Nonprofits should avoid large investments in fixed assets and
infrastructure (i.e., a building purchase, new hires or expansion of
services), and if change (growth or retrenchment) is likely, then nonprofits
need to work with funders and board to build a cushion to allow flexibility
and course corrections. Miller explained: "As economist Peter Bernstein put
it, 'Risk means not having cash when you need it.' And that is particularly
true for nonprofits, which often have liquidity problems in the best of times.
Liquidity becomes even more of an issue during a downturn, when there is a
temptation to maintain or increase services, and hence expenses, even if
revenue is declining."

4. Nonprofits need to get a firm handle now on their revenue patterns.Clara
Miller said: "Organizations can examine revenue cycles to see if they're
contra-economy or not. In some cases, the revenues of nonprofits actually
rise during a recession. If that's true, nonprofits can build growth funding
to allow rapid expansion to meet needs. If the opposite is true, nonprofits
can take actions in step with cushion-developing approaches."

5. If they offer services (e.g., job retraining, food kitchens and housing
services) that will lessen the negative impact of an economic downturn,
nonprofits should approach government funders more aggressively.Clara Miller
noted: "Nonprofits should propose revenue-neutral changes if the government
can assist it with expansion during a recession or improving its practice
within the context its mission. Nonprofits can also band together around
quality-adequate pricing, and consider shared platform investigations, using
already-scaled ones available."

For the text of Clara Miller's statement on this topic, go to
http://www.nonprofitfinancefund.org on the Web.

ABOUT THE NONPROFIT DOWNTURN DATA

The Nonprofit Finance Fund data on nonprofits in the 2001 economic downturn
period was drawn by a randomized process from GuideStar's database of IRS 990
forms for Fiscal Years Ending in 1999 through 2005 for mid-sized agencies
(those with annual expenses between $500,000 and $20,000,000). The 6,585
501-c-3 agencies represent all philanthropic sectors and geographical regions
of the United States.

For a set of the charts from the NFF database, go to
http://www.nonprofitfinancefund.org on the Web.

ABOUT THE GROUPS

Nonprofit Finance Fund (NFF) believes that financially strong nonprofits are
most effective in serving their communities. NFF offers services across the
country to keep organizations in balance and in business. As a Community
Development Financial Institution (CDFI), NFF makes loans to nonprofits for
operations, facilities, and other growth needs. Organizations looking to grow
responsibly and sustainably come to NFF for hands-on planning and advice to
attract and manage funding for growth. NFF's consultations and workshops help
organizations and their funders better understand nonprofit financial
challenges and opportunities, and how financial decisions impact program
delivery. NFF's thought leadership on financial "best practices" serves the
entire sector, including funders. Nonprofit Finance Fund has offices serving
the Northeast, Mid-Atlantic, Midwest, and West Coast.

Children's Choice was founded in 1982 as a Christian nonprofit child welfare
agency and now serves hundreds of children each year throughout Pennsylvania,
New Jersey, Delaware, Maryland, and Washington, DC. Children's Choice
provides foster care, kinship care, and adoption services. The organization
serves as a bridge for individuals who are in need of the re-integrative
processes of family living. Intensive, individual, supportive casework
counseling services empower clients to achieve their highest potential as
responsible citizens

SOURCE Nonprofit Finance Fund, New York, NY

Patrick Mitchell, +1-703-276-3266, pmitchell@hastingsgroup.com, for the
Nonprofit Finance Fund