Nonprofits, especially small ones, can benefit by nurturing diverse revenue sources
June 29, 2012 4:00 AM
Dotti Bechtol is former executive director of the nonprofit Visiting Nurse Foundation, which stopped operations after its main source of funding dried up.
By Tim Grant Pittsburgh Post-Gazette
As the former executive director of the defunct Visiting Nurse Foundation, Dotti Bechtol knows first hand how vulnerable small, nonprofit organizations can be when important sources of revenue fade away and overall economic conditions take a turn for the worse.
The Visiting Nurse Foundation since the early 1990s had operated a free rehabilitation program for stroke survivors. It funded the program by becoming the largest administrator of flu shots in Allegheny County. But when state legislators passed a law in 2007 permitting pharmacists to give flu injections, the organization's main source of funding was reduced to rubble.
The Visiting Nurse Foundation closed its office at the Pennsylvanian in June 2011.
"In hindsight, it would have been nice if we could have come up with some other revenue-producing program," she said. "But once we saw the direction the flu shots were going, it was devastating and we could not come up with another income source fast enough to save the organization."
The world of philanthropy is changing.
The recession had a horrendous impact on charitable giving to nonprofits providing valuable services in the Pittsburgh region for the homeless, abused animals, single mothers, veterans and children. The drop in giving from 2008 to 2009 was the largest in more than 40 years, according to the Center on Philanthropy at Indiana University in Bloomington, Ind.
The Pittsburgh region, defined as a 10-county area, has an estimated 3,200 nonprofits, according to The Forbes Funds. Many of them are small organizations barely scraping by on annual revenues of less than $25,000. Nonprofits earning less than $25,000 are not required to file a tax return with the Internal Revenue Service.
"Nonprofit organizations should absolutely try to adopt many for-profit business practices," said Scott Leff, associate director of the Bayer Center for Nonprofit Management at Robert Morris University. "But it's really important to understand there are fundamental differences between nonprofit and for-profit organizations. There's a different bottom line.
"Money is the bottom line for a business. For nonprofits, the mission is the bottom line and money is a tool for achieving the bottom line."
Mrs. Bechtol, who now works as a business development officer with nonprofit clients at Fragasso Financial Advisors, Downtown, said the Visiting Nurse Foundation's largest customers were supermarket chains, which began using their own pharmacists to give shots. Her annual budget was about $700,000 to $1 million, and in a good flu season the nonprofit could make about $500,000 on flu shots.
Her perspective now is that nonprofits really need to have more of a business mentality.
"A nonprofit has to be conscious of where the money is coming from. They need to be self-sufficient and also be concerned about the bottom line," Mrs. Bechtol said. "That's the change I've seen in the last 10 years. Years ago, nonprofits were not as concerned about losing money."
She said the nurse foundation was at least partially self-sufficient, which in 2007 was a little ahead of expectations that funding foundations such as The Heinz Endowments now have. "They kind of expect or hope now that you don't rely entirely on their contributions. They want you to have some kind of income-producing program," she said.
Robert Vagt, president of The Heinz Endowments, said when a nonprofit organization is either not delivering services effectively or runs out of money, one of the things his foundation looks at in good and bad economic times is whether that nonprofit should merge with another organization or be allowed to go out of business.
"The role of philanthropy is being redefined as we speak because we are having to make new judgments about what we will and will not fund," Mr. Vagt said. "There are not enough philanthropic dollars to fill the void created by the reduction in government funding.
"Not every nonprofit is run with the kind of financial precision you'll find in a well-run business," he said. "But by and large, nonprofits, given their size and focus, are reasonably efficient."
Good financial times may be blamed for spurring excess prior to the Great Recession.
Marginal players were able to come into the nonprofit marketplace and today many of them are hanging on by their fingertips. They may be serving a good purpose, but they won't survive unless they turn things around financially or consider merging with another organization serving the same or similar need.
Robert Fragasso, chairman and CEO of Fragasso Financial Advisors, Downtown, serves as a board member for about a half-dozen nonprofits and as a financial adviser managing the investment portfolios of dozens of local nonprofits.
"The good ones are trying to refocus their resources in the most efficient way," Mr. Fragasso said. "Just like companies that have gone through hard times, they have to decide how they are going to spend those resources and decide what missions they need to fulfill and which they need to ignore.
"Ultimately, if these nonprofits don't survive, their services won't be provided," he said. "When you consider what the public costs would be if all nonprofits disappeared, all of the people being served by those nonprofits and all of those needs would fall on the backs of already scrapped municipal budgets."
Although the recession exacerbated the struggles facing nonprofits, Mr. Vagt said that it also altered the landscape going forward.
"I think we've seen a sea change in terms of what the government will fund even in good times," he said. "Even if the economy came back tomorrow, funding will not go back to what it was five years ago because of the change in attitude."