Are You Sitting on Your Hands 

Watching the Economic Train Wreck?

By Fred Leeb

Are you waiting for a bell to ring or a light to turn green announcing the return of "business as usual" and that it is OK again to go on working in your comfort zone, maybe just working a little harder?  If so, you are wasting extremely valuable time and resources that you need to use now to strengthen your organization.  In this geographic area, there is now a perfect storm causing our own version of a category five Hurricane Katrina.  It is slamming into nonprofits right at the time fundraising should be peaking.  This perfect storm is being caused by a disaster in the auto industry, lower state government revenues and spending, a meltdown in real estate, huge losses in stock portfolios (including retirement accounts) and tremendous uncertainty in what the future holds, causing pullbacks in all types of spending.


The Dow Jones already has dropped by 39 percent since it peaked at 14,164.53 on Oct. 9 a year ago.  The downturn translates into a paper loss of $8.3 trillion, based on figures measured by the Dow Jones Wilshire 5000 Composite Index.  Stock market turmoil has wiped out roughly $2 trillion of Americans' retirement savings over the past 15 months, according to the Congressional Budget Office.


It is up to you to take the initiative for change; you certainly can not depend on the government to do anything to make your agency more successful. If you don't take action to improve your organization now the only thing you will be waiting for will be your competitors to take your market share-the pie is getting much smaller (particularly in Michigan) and only the strongest will survive. 


On the other hand, this is your opportunity to turn lemons into lemonade.  I believe you should use today's economic pressures as a crucible to force yourself to make the good decisions that you should have made long ago.  Some of the actions that make sense right now, no matter what happens in the stock market or what the government does are as follows:


1.      Improve communications with your stakeholders (vendors, customers, board members, employees, lenders, etc.) to cause them to operate with you as team members; ask for help before the situation becomes desperate or there is a crisis.  The best CEO's recognize that self-reliance alone can be counterproductive; they are always working hard to seek out new alliances, ideas, and methodologies.


2.      Consider beefing up mission-oriented for-profit business ventures to generate new sources of cash flow, reduce dependency on fundraising and help your community.  A for-profit business can provide a critical source of discretionary cash, necessary for building administrative capacity and for building quality programming.  It also can be under your own control rather than that of a less-predictable public or private funding source.  That means, however, that it must be run as a successful business so that it throws off cash and not be subsidized by other programming or endowment funds.   A business consultant can be a tremendous help in achieving success in these efforts.


3.      Analyze merger opportunities to gain economies of scale, reduce cost and achieve operating efficiencies.  Don't wait until your organization is in such desperate straits that you will have little or no say in whether you merge or not, who you merge with and how the surviving entity will be managed.


4.      Don't give your bank any excuse to pull your credit line.  Do your best to keep your credit record clean, comply with all the covenants in your bank loan documents, prepare and report financial results on time and pay your debt service promptly.


5.      Collect receivables promptly and do not let inventory sit.  If these assets are not managed aggressively, they will suck up your cash and weaken your ability to take advantage of business options in the future.  Also, you actually will be more respected if you stay on top of collections.  Keep your powder dry (maximize your cash availability).


6.      Take advantage of this economy's expectations for low profits--raise cash by selling off slow-moving and obsolete inventory and by settling disputes over receivables and legal issues, even if this will generate losses.


7.      Focus your most valuable resources (your management time and your cash) to make your organization strongest in the areas with the greatest opportunities for success, while staying within the bounds of your mission.  Cannibalize your other assets in non-essential areas, if necessary, to be able to sufficiently fund your highest priority program areas.  Now is the time to cut all low-performers and dead wood; these are luxuries that your agency can no longer afford.


8.      Make the tough decisions now to cut out the programs that diverted your attention and have been bleeding.  Hire an experienced turnaround consultant to help if the decisions are complex, sensitive relationships require outside objectivity, or you need more experienced manpower to implement change.  Don't lose sight of the fact that procrastination now could result in much greater losses than any reasonable consulting fees.  Use your rifle, rather than a shotgun, to focus your resources and achieve success.


9.      Listen to your employees to get their ideas on potential improvements.  Every employee has first-hand experiences and can have meaningful input on what is really happening in your organization, particularly when the devil is in the details (as is frequently the case).  Utilize a turnaround consultant, if necessary, to conduct confidential discussions and utilize the consultant's wide-ranging perspectives to sift and evaluate the best ideas properly.   


10.    Develop detailed contingency plans now in case your holiday season fundraising is only 50% of what you had budgeted earlier.  Utilize your board to gain consensus, in advance, on these action plans.


I believe that we are still at the beginning of extremely difficult economic times.  In September, car sales declined by 20-40% and on October 9, 2008, GM's stock value fell to only $2.6 billion, down 89% from its 52-week high set on October 12, 2007.  In the United States, J.D. Power expects 2009 industry sales of 13.2 million. U.S. auto sales were roughly 16.15 million units in 2007.  "While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power's executive director of automotive forecasting.   A potential collapse of GM, Ford or Chrysler can not be ruled out.


We also have not yet seen the impact of the huge new government borrowings on the credit markets, potential new taxes, increased job losses, and further losses of consumer credit and confidence (e.g., the inability to borrow on home equity loans, tightening credit card guidelines and more difficult car loan approval processes). 


Every day that goes by is extremely valuable.  Nonprofit leaders have many positive actions available but they must take advantage of every opportunity to change, without wasting any time, to strengthen their position and be one of the survivors of these extremely difficult times.