by Ephraim Gopin
Me (post on Facebook): How good/bad are nonprofits at financial planning for the future?
Friend (in comments): HAHAHAHHAHAHAHA. Does that help?
Exactly ten years ago, Binyamin Netanyahu became Finance Minister and introduced drastic budget cuts and changes – privatizing government owned corporations (El Al, Bezek, Zim to name a few), severely reducing monthly child allowances while simultaneously slashing public sector wages. Some hailed these changes as long overdue and necessary for the overall health of the economy. Critics considered them to be too capitalistic in nature and the catalyst for the widening gap between rich and poor in Israel.
One thing is for certain: The budget cuts led to more people requiring assistance and turning to local nonprofits for help. And with less government funds available, nonprofits turned to donors to increase donations. Emergency campaigns abounded as NPOs cried poverty.
Well, it’s ten years later and another “rainy day” is coming: With Israel’s burgeoning 40 billion Shekels deficit, budget cuts are inevitable. Ministries that nonprofits depend on – Welfare, Education, Health and more – will have less to distribute to NPOs. Even worse is the global economic crisis which will adversely affect incoming donations. And the question is: Have nonprofits learned from last time and are they preparing (if not already prepared) their budgets accordingly?
“Many nonprofits still rely on a few major sources – such as the government – for most of their income, which can become problematic when one or more of these funders fail to deliver as promised,” says Shuey Fogel, Dir. of Nonprofit Solutions for an Israeli Bank and author of TheNonprofitBanker. “In the US, reserves and fiscal health are very much on the radar of both donors and organizations. In Israel, this is less so. Not always because of the donors or the organization, but rather that the government doesn’t encourage it and in some cases even punishes for it.”
Being fiscally responsible does not mean predicting the future – but it does mean keeping an eye open for opportunities and threats. Donors put funds away for the future, so when university tuition payments begin or unfortunately a disaster strikes, they are prepared for the financial onslaught.
Many years ago, a nonprofit executive advised me that NPOs should put away money each year. I implemented this when I advised a nonprofit to deposit into a savings account approximately 2% of the annual budget. The money came from revenue generating programs the NPO operated. The five year target was to have $100,000 accessible.
Now imagine if your donors knew about this “rainy day” fund and how you, as an NPO, are trying to be fiscally responsible. That fund could be used as a donation opportunity – help the NPO tomorrow, not today. When the economy fails, rather than turning to donors with an emergency campaign, funds will be available to pay salaries and keep programs operating.
Look at the quote at the beginning of this post. Nonprofits are not known for their financial planning and budgeting for the future. There may be tough times coming for Israel’s third sector in 2013 and 2014, but now’s the time to start thinking ahead. Economic downturns happen – are you ready for this one? And just as important: Will you be ready for the next one?