I came across an article on “The Chronicle of Philanthropy” dated back to March of 2009 about non-profit deficits and how in the USA, the deficits are resulting in loss of programming, staff and services. You can find this article at http://philanthropy.com/article/Nearly-a-Third-of-Charities/63052/ .
In the non-profit world, “deficit” is almost a dirty word, falling into the ranks of other taboo words like “advocacy”. The article speaks of how one third of the non-profits in the USA had operating deficits in 2008. While in Canada, when I did research a few months ago, most said in census that they expected their funding to remain stable or actually increase. But non-profit deficits are what you have to deal with no matter where you are located in the world.
Some organizations that I have worked with, have run deficits for short times, but immediately developed a plan on how to get rid of the deficit. The most I have seen in a deficit is about 3% of the organization’s annual income. This is still manageable. But there are probably other non-profits in the world that run a deficit more often and with a higher percentage of their annual income. But if a non-profit is running a deficit, there are a few actions they can take. They are:
- Reallocate some core funds – If your non-profit receives core funding, then you may be able to reallocate some of the core funds to cover the deficit, by finding economies in your core expenditures.
- Donor fundraising – If your organization relies on donors, then it’s important to kick up your advertising campaign and get your board tapping into their contacts to help raise money to cover the deficit.
- Grant fundraising – There are some grants out there that don’t have a lot of turnaround time. Most funders will not cover deficits, but if you find a funder who will pay for a part of a program that your core funding now pays for in the fiscal year that you are running the deficit, then you can direct those extra funds where you need them provided it abides by the agreement entered into with the first funder.
- Bank line of credit – You could go to your financial institute and see if your organization can get a line of credit. Keep in mind, banks don’t lend you money when you need it, they loan it when they know you have income that will come in shortly that will cover the loan. So if your deficit occurs because of the timing of funder payments, you may be able to get a line of credit from your bank.
- Go to your funder – If all else fails, contact your funder and explain the situation and see if there is anyway, your organization’s next funding cheque can be sent out sooner, explaining that it is a result of cash flow problems, if that is the problem.
Question of the Day: What strategies have you seen non-profits use to rid themselves of a deficit situation?
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This piece suggests that increased fundraising from donors is one method
of covering a deficit, and the way it reads suggests that donors be told
that is how the funding will be used.
Where I agree that fundraising efforts should be expanded, it’s always a
poor practice to raise money to pay debts, repay loans or cover a deficit.
For the first two, there’s little or no motivation for people to want to help.
Paying bills or repaying loans does not suggest that people are being
helped or a mission is being advanced.
For the third, having a deficit suggests poor management and/or poor
planning. It suggests that an organization may be in trouble, and rarely
are people motivated to support a “failing” nonprofit.
People give to create a result that satisfies their needs, and paying the
“overdue bills” of an organiztion doesn’t fall into that category.
In essence, raising money to help others is what keeps people giving.
When people are having issues about paying their own bills, they’re
not going to be interested in paying someone else’s.
If, on the other hand, an NPO raises money to fund a deficit, and
suggests that the funds are to advance mission/program, that ethical
lapse will inevitably come back to bite….
Hank
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Henry D. Lewis, MA, CFRM
President,
Development Consultant Associates
4701 Willard Avenue, Suite 1213
Chevy Chase, MD 20815
301-986-4747
“Helping Non-Profit Organizations Ensure Their Futures
… With Effective Fundraising Programs”™
http://managementhelp.org/blogs/fundraising-for-nonprofits/
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Development Consultant Associates is a fundraising consulting
firm providing counsel (primarily) in the creation, expansion and
maintenance of Major Gift Programs and in the preparation for
and implementation of Capital Campaigns … including Planning
Studies to preface both types of programs, and Bequest Programs
to supplement both.
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Hi Hank,
For us to think that non-profits never run deficits would be being unrealistic. Also, for us to believe that there are not times that the best of plans go arye, would not be reality. In my article, I am not suggesting non-profits run a deficit, nor am I suggesting they lie to their donors or funders. Every non-profit must be transparent and honest with those who entrust money to them. But I also think that donors would not have a problem with money being spent to sustain a program, that otherwise might not continue. Now that’s my personal opinion, but I know many other people who would feel the same way.
If a non-profit did not use one of the suggestions I offer, then how would you suggest they clear up a deficit? If you feel all the options I am offering are not doable, what other options can you offer? I am always open to new ideas and solutions.
Thanks for your contribution!
Ingrid
Ingrid,
Sorry I wasn’t clear in expressing the thought.
The sentence: “Where I agree that fundraising efforts should be expanded, it’s always a poor practice to raise money to pay debts, repay loans or cover a deficit.” should have been worded differently.
Of course nonprofits run deficits, and of course fundraising often needs to cover the shortage. My point, badly made, was that a fundraising effort should not be limited to and/or publicized as being a deficit-reducer. That would send the wrong message and would garner little support.
The wording for a comprehensive fundraising effort to pay all the bills — programs, salaries, overhead, deficits, etc. — accentuates the positive (the people being helped), and does not dwell on the “negatives.”
You opined that, “…donors would not have a problem with money being spent to sustain a program, that otherwise might not continue.” And I agree. But it’s all in the “marketing.” An effective fundraising effort is one that suggested to donors that they’d be helping others, not one that indicated that the program might be in financial trouble.
Major donors understand that nonprofits occasionally run deficits, and they are often ready to help NPOs bridge the fiscal gap, but it’s not the gap-spanning-gifts that make the donors feel good about their support — as making those gifts rarely satisfy the needs of the donors.
“People give to create a result that satisfies their needs, and paying the “overdue bills” of an organization doesn’t fall into that category. In essence, raising money to help others is what keeps people giving.”
I guess that the key word/concept that encompasses the point I was trying to make is, “marketing.”
Hank
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
Henry D. Lewis, MA, CFRM
President,
Development Consultant Associates
4701 Willard Avenue, Suite 1213
Chevy Chase, MD 20815
301-986-4747
“Helping Non-Profit Organizations Ensure Their Futures
… With Effective Fundraising Programs”™
http://managementhelp.org/blogs/fundraising-for-nonprofits/
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
Development Consultant Associates is a fundraising consulting
firm providing counsel (primarily) in the creation, expansion and
maintenance of Major Gift Programs and in the preparation for
and implementation of Capital Campaigns … including Planning
Studies to preface both types of programs, and Bequest Programs
to supplement both.
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