Board Cafe: Budget Crunch

Board Cafe

Budget Crunch

By Vince Hyman

Nonprofits across the country are facing tough times. States are canceling contracts with nonprofits and even "unallocating" funds, and funders are reducing grants, just as the need for services grows.

What to do? Five years ago, Emil Angelica of the Wilder Foundation and I surveyed cutback responses as part of research for our book, Coping with Cutbacks: The Nonprofit Guide to Success when Times Are Tight. We found three categories of approaches to cutbacks: financial strategies, structural strategies, and engagement strategies. In a crisis, an organization should pursue all three. This framework is not a list of short-term fixes, but rather a way to think strategically about organizational continuity.

  1. Financial strategies include cost cutting and fundraising approaches. Most nonprofits first react to cutbacks by cutting expenses, laying off staff and reducing services, or they try to add income by raising new funds or increasing fees.  Such strategies are often effective, but if the organization is already functioning on a tight budget, may not be enough, and may affect constituents more negatively than necessary.
  2. Structural strategies involve changing the organization's internal structure, its mix of programs, and perhaps even its mission. For example, a fitness community center was faced with intense competition from two new for-profit gyms. Rather than try to compete directly, the board decided to focus on fitness access for seniors, youth, and financially stressed families. This would not be easy to implement: it would mean finding new funders, new constituents, and probably new staff and new board members. By undertaking a structural change, the board is taking a high-risk, high-gain approach to the new environment.
  3. Engagement strategies involve taking the organization's questions to the greater community-to the clients, patrons, business, religious, philanthropic, governmental, and other systems in which the nonprofit is embedded. For example, the fitness community center could choose to convene its current members, other community centers, the public health department, the new competitors, and others. Suggestions from such a meeting might include recommending that the organization close, gaining the public health department as a new funder, moving its location to a hospital, or working out a joint venture with one or more of the competitors. In the best of situations, participants would emerge from such a meeting ready to help the community center.

We have briefly listed 185 cutback techniques (example: "Examine all costs to see if they are necessary.") at

Vince Hyman is former director of the Wilder Publishing Center and co-author of Coping with Cutbacks: The Nonprofit Guide to Success When Times Are Tight.

Original publication date: 4/15/2003

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