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Business of Giving: Nonprofits Have the Demand, Not the Supply


Increased need is stressor, not boom in difficult times.

If you run a business, you know that demand for your goods or services is good for the bottom line. Increased demand means increased sales, which translates to increased revenue. Economics 101, right?

At nonprofits, especially those that serve people in need, textbook economics doesn't apply. Increased demand is an economic stressor, not an economic boom. When more people need our services, we have to spend more money at a time when our income -- meaning donor dollars -- has actually decreased. It would be as if you were told to make more widgets at the same time that your investor pulled back his funding. Your back would be against the wall, and you'd have to find new, creative ways to raise the capital you need to meet your demand. Oh, and did I add that the widgets will all be given away for free?
That's exactly the situation that nonprofits are facing.

The Ford Foundation, the nation's second largest philanthropic group, lost 30% of its endowment because of falling stock prices. The foundation cut travel and office-related expenses, but those savings weren't enough. Last month the board had to close offices in Moscow and Hanoi to help balance the books.

Shriner's Hospitals for Children, which provides free health care to the uninsured, is considering closing 22 medical centers in order to control costs. The charity lost nearly 40%of its $8 billion endowment to the stock-market crisis. That loss, combined with decreasing donations, is forcing Shriner's to withdraw $1 million a day to keep hospital doors open. Shriner's CEO Ralph Semb told the Associated Press that, "Unless we do something, the clock is ticking and within 5 to 7 years we'll probably be out of the hospital business and not have any hospitals."

Charities are being forced to make incredibly tough choices at a time when our services are needed the most. We're a social shock absorber, and because of it, we need resources and people-power now more than ever. The question becomes: How do we pay for it?

In 1864, when Children's Aid was still a very young agency (only 11 years old), most of our programs were in the Five Points section of Manhattan (now known as Foley Square). People, many of them new immigrants, lived in devastating poverty. Businesses in the Five Points were doing what they do during tough economic times: laying off employees and raising prices. It was the middle of winter and children were going hungry. The economy had tanked, and Children's Aid was not immune to the loss of revenue. Regardless, we (working with a now-defunct charity called House of Industry) started providing 1,200 meals a day to some of the city's most destitute citizens. Over the course of a year, we served more than 500,000 meals. (If your family has been in New York a long time, who knows - maybe one of your ancestors shared a meal with us).
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