Responding to Budget Cuts

Almost every nonprofit is facing some types of budget cuts. These range from minor trimming of grants and contracts to major losses of multiple sources of funding. This article gives the nonprofit leader some practical strategies to analyze the situation and take action.

RISK AREAS –  This checklist identifies the most important risk areas for agencies, with potential for budget cuts:

  • Budget cuts and program reductions during the past two years;
  • Low cash reserves;
  • A reduction in the number of grants and contracts, and the total of grant and contract income;
  • Limited funding sources;
  • Cuts in funding from more than one source;
  • Small amount of donor revenue as a percent of budget, and a reduction in number of donors;
  • Budget cuts to multiple programs during any year;
  • Limited response to the Fiscal Crisis: few strategies developed or implemented for handling the shocks of financial change.

STRATEGIES – These strategies provide a practical response reduce your risk and build capacity:

  • Make contact with all funders to determine whether they anticipate changes in funding. Stay in contact with funders with periodic updates, and make sure all reports are submitted on time.
  • Identify potential new high probability funding sources, conduct research, and apply to selected funders.
  • Look at broad collaborative opportunities that would open up new funding at the state and federal level.
  • Step up your donor outreach. Review and analyze the donor database to determine where there are lapsed donors. Increase overall outreach as well as targeted appeals, especially to those donors that have recently become inactive. (Recapturing lapsed donors is much easier and more cost effective than recruiting new donors.)
  • Develop powerful case statements describing how your services make a difference for people and the community. Include outcomes or accomplishments in these case statements. Make sure that all of your leaders have materials, and can share the case statement information comfortably and compellingly.
  • Involve the board and other key supporters in general outreach, one-on-one outreach to major donors, and/or small event house parties.
  • Analyze the budget for potential budget cuts, and develop scenarios.
  • Determine income goals for different outreach strategies listed above. These strategies should increase income by 5% to 15%.
  • Analyze programs and budget, and develop strategies for reducing 10% to 15% of the current budget. Keep these, and use only if needed.
  • Recruit a few new volunteers from your donors, former board members and friends, and involve them in these strategies.