The Downside of Running a Charity Like a Business


Charities are now falling into bankruptcy as times get tougher. The trend of the ’00s has been for nonprofits to act more like for-profits–social entrepreneurs, social venture funders, social capitalists, triple bottom liners, pro-social for-profit hybrids. (Whatever you want to call them, Fast Company has been all over them.) They’ve hired marketing firms and consultants, and been evaluated by new rating agencies.

However, now that the for-profit economy has fallen into such dire straits, and just when more and more needy people are turning to organizations like food pantries, nonprofits are going down by the same means that they once used to try to grow. Buffeted by downturns in donations and government cutbacks, an increasing number are having to file bankruptcy, rather than simply close their doors, because they have creditors to deal with. They borrowed money in attempts to grow faster than their current donor base permitted–in other words, they were overleveraged just like for-profits.

Charities made bad investment decisions as well. The Jewish Funders Network has started a $5 million “Crisis Loan Fund” to make up budget shortfalls for the large number of organizations that lost money to the Madoff ponzi scheme.

There are two possible outcomes of these unfortunate setbacks. One is that nonprofit management will return to an earlier, more cautious and patient model. The other is that new government programs will step in to take over some of the functions currently provided by private charities, which is more or less what happened during the New Deal.

via New York Times; Image Fast Company