The NPO finan­cial crisis

CENTER FOR PHILANTHROPY STUDIES (CEPS)

The sudden halt of US aid under Presi­dent Trump has also hit Swiss aid orga­ni­sa­ti­ons unex­pec­tedly hard. This and other decis­i­ons by the Trump admi­nis­tra­tion could trig­ger a chain reac­tion with simi­lar effects on the NPO sector as the finan­cial crisis of 07/08 had on the economy. Back then, the over­hea­ted US mortgage market led to a global econo­mic crisis.

A decis­ion with consequences

The complete short­fall of 65 billion dollars in US deve­lo­p­ment funds per year could not be substi­tu­ted, even if foun­da­ti­ons, private donors or compa­nies were to replace part of it. As a result, their funds would be lack­ing in areas such as educa­tion, social services or culture, which would also fall under pressure. 

In this situa­tion, NPOs should clarify some key points for their finan­cial manage­ment. Firstly, liqui­dity is the most important finan­cial objec­tive for NPOs. Most funds are earmarked for a speci­fic purpose, reser­ves can only be built up to a limi­ted extent and access to outside capi­tal is almost impos­si­ble. Main­tai­ning finan­cial health should ther­e­fore be of central importance to NPO manage­ment. Secondly, a solid needs assess­ment provi­des the basis for reac­ting quickly in a crisis, as it shows which budget items can be influen­ced or adjus­ted. This also protects against making cuts in the wrong place. Thirdly, good cost manage­ment is needed to sepa­rate the neces­sary from the super­fluous or post­ponable. Howe­ver, the cost of inac­ti­vity would be grea­test if NPOs were simply to hope for better times in view of the current situation.