1. nonprofitfinancefund.org ©2009 Nonprofit Finance Fund

2. 2 Summary of Key Findings for California Nonprofits The Financial State of Nonprofits Nonprofit Finance Fund recently conducted a survey of nonprofit organizations on how they are handling the current recession.  Only 11% of all respondents expect to operate above break-even this year.  Just 9% anticipate being able to cover their operating expenses in both 2009 and 2010.  31% don’t have enough operating cash in hand to cover more that one month of expenses, and another 35% have less than three months’ worth.  In 2009: –45% anticipate a decrease in funding from government –61% anticipate a decrease in funding from foundations –45% anticipate a decrease in funding from individuals –38% anticipate a decrease in earned revenue  50% of respondents expect the recession to have a long-term (2+ years) or permanent negative financial effect on their organizations.  100% of lifeline organizations that provide essential services anticipate an increase in demand in 2009.

3. 3 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Key Findings for California Nonprofits Compared to Organizations Nationally California as a “Bellwether”  California Nonprofits experienced a sharper increase in demand in 2008 than organizations nationally, but now all organizations are expecting significant increases in demand for 2009.  Possibly because of the California Budget Crisis, California Nonprofits have been more proactive in reducing expenses compared to organizations nationally:  Reduce staff or salaries – 20% more  Reduce staff hours (short weeks, furloughs, etc.) – 45% more  Freeze all hires and current staff salaries – 15% more  Reduce or eliminate programs – 13% more  But have not taken other drastic options:  Fewer have reduced staff benefits – 29% less  Fewer have delayed payments to vendors – 22% less  California Nonprofits are more concerned about meeting expenses in 2010 than organizations nationally.  California Nonprofits are experiencing significantly longer delays in government funding than organizations nationally.

4. 4 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Planning for the Future Prepare for a sustained economic crisis. Avoid “fake it ‘till we make it” behavior and business-as-usual spending. Don’t wait until the wolf is at the door: Recognize and address the situation now. Use financial planning tools to guide decision making: Assess your exposure and risk. –How might your revenue and expense components be affected? –Understand the strength of your income statement and balance sheet Address risk: Plan your response. –Identify and quantify your options –Know when to implement Plan B (before you have to) Explore: Strategic Alliances, Partnerships, Mergers. Communicate early and often.

5. 5 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Developing a Financial Toolkit Good financial decision-making requires timely, accurate and transparent financial information First things first: What financial planning and management tools do you currently use and are they giving you the information you need? Year-to-date actuals vs. budget Balance sheet Monthly cash flow Revenue and expense by program Tools are only as good as the assumptions behind them Tools are not a substitute for making difficult decisions.

6. 6 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Assess Risk: Know your Balance Sheet First things first: Know where you stand Cash – How much? How “liquid”? Receivables – Are they slow to collect? Are any at risk for collection? Line of Credit – How do you manage cash flow? Are you using debt appropriately? Fixed assets – How will you address maintenance issues? Temporarily Restricted Net Assets – Do they support your core programs? Reserves – Do you have them? Suitable to your needs? Agreement on use?

7. 7 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Assess Risk: Know Your Balance Sheet Are you operating now from a position of strength or weakness? If your balance sheet has… No cash or receivables A fully drawn line of credit Little or no reserves available to management Significant wear-and-tear of fixed assets …There are no dollars immediately available to draw on in challenging times Borrowing to replace lost income is rarely appropriate Your condition will inform the urgency and types of action your leadership should take What is your risk tolerance?

8. 8 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Assess Risk: Questions to Consider How might the reliability of your organization’s revenue streams be affected in an economic downturn? Will costs have to be cut, and if so, which costs? Will the recession lead to increased demand for services and, if so, how will you respond? How will your organization deal with these potentially competing effects? How might changes in revenue streams and cost reduction strategies affect operating results? How will changes in your operating performance affect your organization’s balance sheet?

9. 9 nonprofitfinancefund.org ©2009 Nonprofit Finance Fund Address Risk: Plan Your Response Identify and quantify your options. Some may include: Which activities are core to your mission? Are they positive financial contributors? What are some ‘non-negotiables’ in your budget? How might you mid-course correct? Will you/can you afford a deficit? (i.e., tap cash reserves) How will cuts impact delivery of mission? Economic viability? Engage your staff in these conversations. Bring your alternatives to the Board Determine the triggers (early indicators) that lead to Plan B Different for every organization (for example, if X% of revenue doesn’t arrive by Y, we will cut Z% of expenses) Re-evaluate growth plans Consider postponing large investments in infrastructure and launching new programs