Early in May, Imagine Canada released its inaugural Sector Monitor report, a document ostensibly produced to gauge the health of the Canadian voluntary sector in the wake of the world recession.

The report makes for an interesting and informative read to anyone wishing to know how the sector fared over the last two years. It was a rough ride.

According to Imagine, the report will be an ongoing “survey program designed to monitor the state of charities across the country and their ability to deliver their missions” with an eye towards providing the organization and all its partners with “relevant and timely information on the issues facing charities and nonprofits.” The report surveyed some 1,500 registered charities between November 2009 and January 2010. Marcel Lauzière, Imagine’s president and CEO called the report an “important milestone” for the sector.

Top findings for the nonprofit minded

While one can read the full report for more in-depth findings, a cursory glance at the top line items in its executive summary shows the sector has undergone some tectonic shifts.

The following are just a sample of the general findings and are not surprising considering the state of the economy at the time of survey:

• Many charities are experiencing challenges associated with the economic downturn.
• Nearly half are having difficulty fulfilling their mission and/or are facing increased demand for their products and services.
• Almost a third expect to have difficulty covering expenses in 2010.
• Almost a quarter say their existence is at risk.
• Foundations are more optimistic than operating charities about their ability to carry out their mission in the short and medium term.
• Operating charities are most affected by decreases in government funding while foundations are most affected by decreases in investment income.
• Of operating charities surveyed, more than half of organizations increased their reliance on volunteers.
• Two-fifths used reserve funds.
• A quarter reduced services or programs.
• Just under a quarter reduced their paid staff complement and/or the hours paid staff work.

 

Again, these are only some of the findings. But what’s of interest is the clear divide that emerges between operating charities and foundations in terms of stability and ability to weather the economic storm.

Big brother is watching, and adjusting

Over at Big Brothers Big Sisters of Canada (BBBSC), one of Imagine’s many partner organizations on the report, the mood is one of cautious optimism.

Bruce MacDonald, president and CEO, said he was most surprised at a finding in the report indicating that many organizations were able to adjust to the economy by looking for new revenue streams.

“Given the operating environment over the past two years, clearly leaders are concerned about the health of their organizations,” he said, noting that on the plus side, 88% of organizations “found revenues from new sources. The resiliency of the voluntary sector is certainly evident as organizations were able to secure new funding streams in one of the most challenging economic climate in recent memory.”

That said, the status of his own organization was not unaffected by the economy. MacDonald candidly explained that BBBSC “continues to feel the ill effects of the economic crisis. While the organization did not lose a single local agency due to financial cutbacks, a number of local Big Brother Big Sister agencies were forced to suspend service or discontinue the intake of new volunteers.”

Asked what mitigating efforts were being implemented to counteract the downturn, MacDonald said BBBSC “continued to be creative” in finding new approaches during tough times. Examples of this creativity ranged “from examining social enterprise ideas to moving sponsors to multi-year contracts [and] ensuring that all parts of the organization have a balanced revenue mix is key to coming through tough times in relatively good fiscal health.”

Habitat for sector health

For its part, Habitat for Humanity Canada (HFHC), another partner on the report, called the document “fairly representative” of how it sees the sector.

Stewart Hardacre, president and CEO of HFHC, told CharityVillage® while HFHC managed to improve its fundraising over the 2009/2010 timeline — due to “a more focused fundraising approach” — and maintain existing programs and staff, it still needed to operate with a lot of financial caution.

“Demand and need for HFHC’s programs is significantly higher in recessionary times, but we are financially only able to partially respond to this situation, even with our improvement in fundraising in 2009,” he said, adding that he too remained optimistic that with improvements in fundraising techniques the organization hopes “to increase the number of programs it delivers to serve more Canadian families” in 2010 and 2011. This despite less government funding to the organization.

Foundation and charity

As noted in the Sector Report items above, operating charities seem to have been harder hit than foundations.

This finding is unsurprising to Hilary Pearson, president and CEO of Philanthropic Foundations Canada (PFC), who said that, in general, her member organizations look at economics differently than many operating charities and suggested there is now a “new normal” for looking at financial markets. The old paradigms no longer apply, she said, asserting that what foundations and all organizations have to come to terms with is a market that is simply “erratic.”

She said operating charities and foundations alike need account for this sea change and while she admires the optimism of the sector’s charities, thinks that they need to reflect this change in their budget and investment planning.

“The business media says the markets are better, we’re doing alright and we’re all fine again. Unfortunately, I don’t think that’s true from a foundation point of view. We pay attention to financial markets. Our members are not seeing stabilization. After the crash of 2008, we started broad conversations and conducted surveys of our members. We were hearing there was now no ‘normal’ to get back to,” she said.

Pearson said the old model of investing in a diversified portfolio with “guaranteed” returns that would easily meet disbursement quotas and expenses, as well as allow foundations to add capital…”it’s just not going to be that stable a world.” And with the instability comes caution.

The major finding in the Sector Monitor which she said was unsurprising was the fact that many charities said that they were burning through monetary reserves and left themselves short, all the while not knowing where the next influx of revenue may come from.

“Clearly, government is cutting back [on funding] for the foreseeable future. Don’t count on that,” she said. “Most charities that didn’t have a solid funding model and didn’t know where they could count on their earned revenue, those are particularly in trouble.”

She said those foundations operating strictly on the endowment model, as the monitor points out, aren’t feeling the “same pinch” as charities, because their funding comes from invested assets. While their money is still there, it might be less than it was which causes many foundation boards to become wary of who, when, and how much they disburse to charities and causes.

“Overall, the report shows things aren’t terrible, but it’s not ‘rah-rah’ either,” Pearson said.

Asked if there was any chance the markets could stabilize and go back to any sort of predictability, Pearson said savvy investors predict this won’t be the case.

“You can’t count on generating a really good return on investment. This may mean [charities and foundations] now have to cut some expenses in order to reduce operating expenditures,” she said.

Pearson noted however, that while monetary aid from foundations to grantees may be on the wane, her members are trying to do everything in their power to help nonprofits through these times; much of this is being done with an increased focus on providing non-monetary assets.

“They’re looking at more convening activities — getting charities to talk to each other and share information. There may now be more interest among foundations in helping charities think through these [financial] problems with their funding models. That’s the big question for everybody. We have to assume instability, difficulty in accessing funding from governments and assume charitable donations may or may not be there,” she said.

Pearson said the conversation charities should be having now is one that asks “how can we as charities get some stable revenue that is earned revenue? How can we run charities as businesses? How can we run on a business model rather than a charity model? And that’s where I think foundations can help support charities. There’s a lot of good work going on out there on this.”

In addition, she said charities should no longer be relying on the “crazy paradigm” that has them dependent on charitable donations. “This is nuts. They should not be depending on charitable donations. It’s a terrible way to get funding…it’s the nonprofit starvation cycle.”

She suggested charities read an article called the 10 Nonprofit Funding Models found in the Stanford Social Innovation Review.

“The key points made in that article is that most executive directors of charities aren’t comfortable thinking about financial issues, it’s not what they were hired to do. They try to scrape money together and at the end of the year rely on fundraising to cover any gaps. And the boards of these charities don’t talk about this. Because of that, you get huge turnover in the development and fundraising offices, because fundraisers have to do impossible things” based on a faulty fundraising model, she said.

“I hope more charities in Canada will think about these points and I think foundations can help them do that.”

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.

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