Fighting Depression
Months before COVID-19 hit, we posted an article about how you or your favorite charity might avoid a recession if it came. Well, in case you missed it - it’s here and with a pandemic to help it along!
How we give and get money has changed forever as a result.
The recommendations from late last year on how to fortify yourself against this recession - or some say depression - is repeated here in case you missed it. These recommendations are adapted from our forthcoming book "Generosity: Giving, Getting, and Managing Philanthropy Preeminently."
Recommendations from the Original Post
The news is full of speculation that the American economy is on the brink of a recession. A key economic indicator, the three-month Treasury rate bested the 10-year yield this year, has rattled investors in both their for-profit as well as their charitable portfolio strategies.
Growing media attention on this developing trend is making anxiety in the marketplace even more pronounced. And trusted advisors to the more-wealthy donors are urging even greater caution and care in who and what they give to this year and next. After all, other recession indicators of trouble are rearing their heads as well: Global growth appears to be slowing; a tariff tit-for-tat trade war with China has engulfed American products and services; employment data and payroll estimates are missing forecasts on occasion; U.S. manufacturing is not bouncing back; confidence indicators are getting a little more shaky; and, our annual budget deficit is projected to explode past $1 trillion in FY2020, among other trends.
If you are a charity who embraces the transactional donation culture you should be rattled, too. It is time to become a whole lot more strategic in how you raise dollars and manage generosity overall.
Conventional wisdom holds that when operating cash and profits tighten, corporations in particular, cut spending in marketing. And marketing, cause related marketing, often benefits needy charitable organizations. That means those special events tickets and auctions and those corporate social responsibility gifts, the mainstay for many charitable organizations today, will become much more difficult to land.
Small donor individuals, for their part, will become far more selective and discerning on where they give for annual funds and end-of-year giving when market downturns occur. They have far fewer available dollars to give to that once thriving charity in need and competition for the charity dollar is undeniably fierce today.
If you are a relationship-centered donation charity, you should be hopeful about the opportunities the market ahead might provide, but now is the time to double-down on your efforts, as well. Relationships take time to build and the recession clock is ticking, one way or another. A recession is inevitable, someday, so you best prepare.
But how?
The 10 Ideas Proposed for Surviving a Recession
There are ten strategies you might consider to better fortify your charitable organization now that the recession is here. These suggestions might even help ward off those predicted recession blues as they emerge while you are locked in to stay safe from the coronavirus.
1. Private family foundations are required by federal law to distribute at least five percent of their fair market value to charity every year whether the market is strong, stagnating, or retreating. The same people who have created these foundations made their money by making sound decisions. It is no different with their charitable choices either. These donors want to make sound investments in the charities they support as well. But that five percent rule means that even if a donor cannot find a worthy charity to support, they have to donate anyway or risk losing a big chunk of their fund to significant tax penalties. Trusted advisors will tell you that finding worthy, solidly managed charities is not as easy as it sounds. With a potential recession looming, now is the time to take stock of your mission and the programs and facilities you offer to those you seek to serve. Generate as much data as you can on the impact and efficiency your organization is achieving – and strive to do even better. Pay more attention to getting that four-star Charity Navigator rating. It tells the funder a lot about you and your excellence without having to take time to dig deeply into your track record. If you need a strong data package, check out products offered by Salesforce, for example. By adding more private family foundations to your charity’s portfolio you might create a better hedge against any possible recession.
2. Program Related Investments (PRIs) are one of the most overlooked and powerful charitable funding tools available to wealth today. PRIs allow foundations to make investments as loans or equity stakes rather than simply giving money away through grants. A dollar given today can be recovered at a later date and loaned or donated to the same or another charity then. They are even permitted to receive a reasonable rate of return (generally in the one percent range), which wealthy households certainly appreciate. PRIs expedite construction schedules and, if structured properly, can significantly supplement that program funding you are seeking in order to have a much bigger impact in your market. The proper and improper uses of PRIs are well-defined in federal statute, taking much of the guesswork and unstable deductibility elements found in many other platforms out of the planning equation. As a consequence, PRIs have been a favored platform for leading charitable opinion shapers such as the John D. and Catherine T. MacArthur Foundation, The Ford Foundation, The Rockefeller Foundation, The Bill & Melinda Gates Foundation, the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, and so many more. Average charities, thanks to the growing expertise out there among trusted advisors and foundation executives, makes this generosity tool a more likely candidate for helping your organization stave off the possible ravages of any likely recession. Forbes magazine published a great article in February 2013 with the headline, “Why Program Related Investments Are Not Risky Business.” It’s worth reading!
3. Public-private partnerships fill the gap in funding needs when the private sector alone, or the public sector for that matter, cannot. Once reserved for the domains of large-scale infrastructure and public works projects, P3s as they are sometimes called, offer great potential to smaller projects as well. These partnerships typically reduce costs, inspire greater innovation, spread risk, enhance return on investment, and with the right team behind them, do great public good without unnecessarily inconveniencing the public. Strategic charities will be able to help their markets change the way these projects are conceived and executed. Rather than taking the top-down perspective to solve local funding issues, stronger charities will be able to offer viable more bottom-up solutions that might be far more logical and achievable. In essence, what you are doing as a charitable organization is creating a P4; a public-private-philanthropic partnership! This strategy might make your charity a far more attractive funding candidate for the discerning donor.
4. Collaborative fundraising lets a strategically savvy charitable organization share a challenging raise effort where you can. Partner up with charities that are like-minded and mission similar. It is better to share 50% of something rather than 100% of nothing, goes the old saying. Donors like to maximize their impact where they can and leverage their impact when they are able. Collaborative raises, coordinated effectively, are exceptionally attractive funding opportunities. Do as many as you can as often as you can, and you might add yet another recession-hedge to your quiver of arrows. Besides, there often is more power in team than there is in sole effort. One caveat to keep in mind, however, effective collaboration and teamwork requires unyielding trust on the part of team participants. Collaborate with trust and excellence and your organization will succeed abundantly, more easily at least where larger donations are concerned.
5. Community Foundations are very much worth getting to know as quickly as possible. Your local community foundation is the reputable eyes and ears of your community. They can guide you as well as counsel you on how best and who best to approach in a funding opportunity. Community foundations can play an important partnership role for your organization, whether you are working with a collaborative raise or a specific donor. Community Foundations offer objectivity, accountability, permanence, and professional management. If you need a third-party independent fiduciary, community foundations may be your solution. If your donor needs immediate tax benefit, community foundations may be able to help in cases where that donor may not already have a foundation or charitable vehicle of their own to deploy.
6. The trusted advisors network permit charities and charitable donors both to counsel with leading trusted advisors in your market, but not with your hand out on the first meeting. These trusted advisors can be found through your local community foundation, or in one of your leading nearby tax/estate planning attorney firms, trust companies, or private client bankers. Understand that the role of a trusted advisor is to protect the donor from every charity who might approach with their good idea. Understand, too, that the donor dictates the rules of a gift, not the charity. If the charity makes it too hard for the donor to give, logic holds that the donor will not give. The trusted advisors network can provide an invaluable resource of knowledge and opportunity to the strategically attuned charitable organization.
7. Charity mission is the name of the game. Tighten your charity’s mission and objectives. Remember your core purpose and execute on that purpose with as much focus as you can muster. Engage an enterprise excellence expert to help you and your organization ensure viability, especially if you expect to face a challenging marketplace in the near future. Fine tune that one-year, three-year, and five-year strategic plan. Review your guiding principles and recite them at every rational opportunity. Put your business plan in writing and distribute it to your key stakeholders. Define your critical success factors and review them at least quarterly. Mark your targets and meet them, without fail, consistent with your charitable culture and best practices values. And, please, please respect that charitable non-profits are required by law to be transparent.
8. Cost-to-raise-a-dollar ratios are vital measurements of your success. If you improve your cost-to-raise-a-dollar ratios, you will help improve your mission success opportunities as well, regardless of the health of our economy. The more efficient your charity is with those hard-earned donor dollars, the more attractive you become to that donor searching for a reputable, worthy charity of choice to adopt. As you would with your personal finances when facing a possible or even actual recession: pay down debt; raise more money from more diverse sources at more various levels; boost your organization’s savings and better populate that endowment; reduce overall expenses by employing more collaborative means of cutting high costs (such as participating in a solar farm that can provide energy credits or cash grants to mitigate your monthly energy bills); keep your eye on the long-game; and, hire the most talented people you can afford to raise and manage funds for your charitable organization.
9. Don’t stop communicating as attention focuses more and more on problems we will face now that our economy went into recession. It has always been amazing to me that organizations quickly carve up their marketing budgets when markets do decline. Common sense tells you that the time to beef up marketing comes when markets are more difficult to win. Communicating with purpose, focus, and effect, are all the more critical. Maybe this time you might want to consider throwing out prior conventional wisdom, such as slashing your marketing budget now that recession has hit again and do what it will take to keep your mission and your funding on track despite market challenges. If you have a rainy-day fund for marketing help in recessionary times you will weather the storm and prosper for those whom you seek to serve. This is certainly a best practice in the fundraising industry. Be prudent. Be strategic. Be resilient.
10. Remember what got you here in the first place as you consider these recommendations for surviving the recession. Successful fundraising has become a two-track process as donor-related technologies have advanced over the past two decades. You can reach any prospective donor, and certainly any prospective donor’s trusted advisors, in this day and age. Their contact information is out there for all to discover. Their giving and getting results are free to the user thanks to services such as ProPublica’s Nonprofit Explorer. Explore by all means. But do not take your eye off the ball on what got your team to the place it is today. Keep pursuing those small dollar donations, and special event benefits, as you cultivate larger gifts from wealthier donors in the process. Build your planned giving program while you mine your annual fund opportunities. Do it all and you will mitigate the risks of a stagnant or recessing market if it happens.
God speed, everyone!