April 27, 2009

Surveys: Few NP Mergers And Ready Credit

Despite yet another doom and gloom outlook for nonprofits in 2009, very few organizations are even considering mergers or selling assets. And, most nonprofits are not having trouble getting credit. Those are snippets from two different surveys, one by the Nonprofit Finance Fund (NFF), the other by Grant Thornton LLP (GT).

Nonprofits are more likely to develop worst-case scenario contingency budgets and engage more closely with their boards, according to the survey of nearly 1,000 nonprofits by NFF.

Nearly half of respondents (48 percent) said they would freeze all hires and current salaries or have funder conversations to explain the situation and/or use of currently restricted grants to “keep their doors open in difficult times.” Only 4 percent called it “business as usual” and plan no change.

“This crisis presents funders and government with an opportunity to substantively change practices that perpetuate inefficiency and stymie innovation and growth,” said Clara Miller, president and CEO of New York City-based Nonprofit Finance Fund. “The talent, resources, and passion that people in the sector bring to the goal of addressing society’s most pressing issues must be protected and nurtured. This recession is forcing the issue of how to better invest in what works for the benefit of society.”

Asked what type of technical assistance would be helpful to their organizations, respondents most wanted “tools to communicate financial picture to the board and/or funders” and “financial scenario planning” with some also looking for assistance analyzing their current financial situation or program finance analytics.

While 40 percent of respondents said they ended the most recent fiscal year with an operating surplus, compared to 32 percent with a deficit and 29 percent break-even, those figures shift for 2008/2009. The number expecting a deficit doesn’t change much (33 percent), but a mere 12 percent expect a surplus while 41 percent anticipate breaking even.

About 16 percent anticipate being able to cover operating expenses in both 2009 and 2010. More than half expect the recession to have a long-term (more than two years) or permanent negative financial effect on their organizations.

Respondents expect a decrease in funding from a variety of sources, namely foundations (62 percent), individual donations (49 percent), government (43 percent) and earned revenue (33 percent).

Respondents to the NFF survey tended to be from small and mid-sized nonprofits, with the largest representation (35 percent) having annual expenses of $500,000 to $2 million. About a third of respondents had fewer than five employees and another quarter between six and 15 employees.

While the economy takes its toll on most business sectors, 87.5 percent of nonprofit chief financial officers (CFO) participating in a recent GT study indicate that they have had no difficulties accessing credit, and 96.9 percent indicated that they had access to alternative financing structures and did not need to return to bank credit.

However, this does not diminish the prevailing attitude among more than 90.6 percent of respondents who believe that the U.S. economy will remain in a recession through the end of 2009.

Pricing pressures relating to employee benefits tops the list among concerns of 90.6 percent of the CFOs, followed by energy (37.5 percent); and insurance (25 percent).

To address rising costs, 68.8 percent of CFOs are reducing business travel; 56.3 percent are not giving raises this year; 53.1 percent are refining processes and streamlining; and 46.9 percent are not giving bonuses this year.

As financials are increasingly being scrutinized, putting more pressure on CFOs to provide pertinent data, 81.3 percent believe that financial statements are too complex to be useable. When it comes to financial statements, 37.5 percent of nonprofit CFOs view the primary user of their financial data to be management.

More than 81.3 percent of the CFOs, like CFOs in other sectors, consider it important to supplement financial statements with non-financial measures about their organizations in the form of KPIs (Key Performance Indicators). Yet, despite the overwhelming support for inclusion of such information, only 21.9 percent currently provide it.

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This article is from NPT Weekly, a publication of The NonProfit Times.

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