In a previous blog entry, we asserted that those not-for-profits weathering the economic storm (aka the Great Recession) were likely to emerge with improved financial management practices. We still believe this to be true. However, the theory is about to be tested, as a second storm is upon us. Just as hurricanes are named in alphabetical order, it seems logical the next economic storm should begin with an “S,” since the previous storm was an “R” (as in Recession). The next economic storm is named, of course, Sequestration.
Not-for-profits are bracing for the effects of sequestration. Certainly, those that rely on federal funding may be in the eye of the storm. Additionally, those that receive state or local funding are also in the storm’s path, though not in the eye. There are other collateral effects as well. Not-for-profits that receive corporate funding may also be affected. Individual donors whose disposable income is reduced may, in turn, reduce the amount of their charitable contributions. And, should we experience a “perfect storm”—where the economy stalls and investment returns flat-line—then not-for-profits will be further tested as program funding drops just as the demand for program services rises. Local communities will be turning to the not-for-profits to fill voids in services resulting from governmental cutbacks.
How will not-for-profits cope with this new storm? It remains to be seen, but those ramped-up financial management practices should help them navigate the turbulent waters more easily. It is also likely that the private sector will need to step up and increase their support of not-for-profits. Regardless of one’s views on sequestration, one thing we can all agree on is that the needs of our communities will remain.