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.
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