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Illustration by Jocelyn Ruiz
I’ll keep this simple, as many of us have a lot on our minds as we experience the world grappling with a public health crisis. Once you have looked out for the safety and well being of your employees by implementing work from home, social distancing, and community hygiene, it is critical that you turn your attention to your organization’s future fiscal health. Putting this off may impact, and potentially prevent, your organization from implementing its mission and providing critical services.
We have to look at the financial markets
The dual shocks of COVID-19 and an oil price war have roiled global markets. As of mid-March, the S&P 500 has plummeted over 27 percent since a market high on February 19, 2020. Uncertainty is likely to continue as the dual shocks on the global economy are increasing the probability of recession. Keep this idea of uncertainty in your back pocket, as we will return to it soon.
We just saw this
Again, with the focus on financial markets, we’ve seen this before and not too long ago. Remember the global financial crisis (GFC), aka the Great Recession, of 2007-2010? Of course you do. It took well into the last decade for most to recover; and, in some cases, organizations and communities never recovered.
For the nonprofit sector, the GFC wreaked havoc on donations and budgets. This decline is not anecdotal. According to a study by The Russell Sage Foundation and The Stanford Center on Poverty and Inequality, the GFC reduced total giving by 7 percent in 2008 and by another 6.2 percent in 2009. And, despite slight upticks in 2010 and 2011 in giving, they were still well below pre-GFC levels. Additionally, even as wealth and incomes began to recover, there is evidence that uncertainty and changes in the habit of giving carried on well past the end of the recession.
Many nonprofits were caught off guard by the GFC’s impact on charitable giving. Unfortunately, many had flat-footed responses and waited until they experienced budget shortfalls before making adjustments. This was especially true among organizations lacking diversified revenue streams.
As a result, many organizations cut back on services, made drastic budget cuts—including to employee benefit programs and staffing—to stay afloat, or outright closed. This was especially true of organizations outside the health and human services sector, where drops in the double digits were not uncommon. I am aware of several environmental nonprofits that experienced drops exceeding 20 percent. This is not surprising, as organizations working to alleviate the impacts of the recession on vulnerable populations saw upticks in funding during the GFC as donors refocused donations. For example, donations to food banks in 40 cities increased by 2.2 percent from 2007 to 2008, and by nearly 32 percent from 2008 to 2009.
We have to apply lessons learned from the GFC
First, meet with your board finance committee as soon as possible and begin the conversation. Now is the time to think about a budget reforecast. If you wait until next fiscal year's budget—especially for organizations that budget the second half of the calendar year—you may be too late and be faced with drastic measures.
Second, model out and scenario plan for revenue declines of 5, 10 and 15 percent. Do this with your senior leadership team and your board finance committee. To help facilitate this discussion, have your CFO run budgets from 2006-2012 and see how your revenue fluctuated. This will not give you exact answers, but it may give you a rough idea of what to expect. Concurrently, have your development team dig into your donor database and run reports on giving during those same periods by donor levels. They can also pick individual donors across giving segments that gave throughout the period and see how their behavior changed. Again, this is not an exact science but may give you some insight of what to expect. If your organization was newly formed after the GFC or does not have good data, then peer data and the model/scenario planning may be your best bet to get a ballpark idea.
Third, even if we see a V-shaped recovery, we have to expect that the uncertainty we are all feeling right now will carry forward to year-end appeals revenues, giving decisions, and potentially beyond.
Finally, don’t panic. Our sector is resilient. We’ve been through this before. This is a time to make informed and collaborative decisions. But start that process now, not when it is too late.
Seth Cothrun consults nonprofit and private sector clients on marketing and communications, executive management and strategic planning. He is a 2018 Aspen Institute Fellow; a member of Class IX of the American Express Leadership Academy at ASU Lodestar Center; serves on the Board of Directors of High Country News; and, currently serves as Chair of the AMEX global alumni network’s Committee on Innovation & Communications. Prior to consulting, Seth was a senior executive at Sonoran Institute, playing a leadership role in refocusing the organization’s mission while rebuilding brand, marketing and development strategies in the U.S. and México. Previously, he managed business development and marketing initiatives throughout the Americas in the institutional asset management space, working with some of the largest public and private funds in the world. The early part of his career was spent as a program manager in the U.S. Forest Service throughout the West, in addition to serving nationally on Type 1 Incident Management and Burned Area Emergency Rehabilitation teams tasked with managing high complexity wildland fire incidents and post-fire effects. He has also lived and worked in México as a photographer. He holds an M.A. from University of Chicago in Anthropology & Latin American Studies and a B.A. from the University of Arizona in Anthropology & Latin American History.