It’s been a wild few years for nonprofits. Need went up, donations went up. Need kept increasing, but donations started decreasing as life steadied. In-person events disappeared, and if your virtual game wasn’t up to par, it was hard to communicate your mission.
You survived, and many of you thrived. Now, with many of us breathing a collective sigh of relief, here comes economic uncertainty.
I recently sat down with Jeff Carlisle, Member, Lerman Senter PLLC to discuss how nonprofits can prepare for a potential economic downturn. Jeff has established, managed, and counseled major nonprofits and other organizations in his business law practice, encouraging them to maximize fundraising while safeguarding against economic downturns. He recently managed the merger of two trade associations: News Media Alliance and Magazine Publishers of America, now known as News/Media Alliance. His role often focuses on helping nonprofits find success.
Economic Uncertainty for Nonprofits
Jeff began our conversation by acknowledging the uncertainty nonprofits face. “It’s hard to know where the economy is going month-to-month. There’s a lot of data out there, much of it conflicting. Gas prices have declined for the last month, but the annual inflation rate is still the highest in 40 years. The unemployment rate is around where it was before the pandemic, but it has yet to be shown whether wage rates will keep up with inflation. More specific to nonprofits, donors and donor retention rates are down recently, though that could represent a retreat from an overall increase in giving during the pandemic.”
This echoes what our clients tell us. Food Bank for the Heartland was a $20-million organization before the pandemic; today, it’s a $65-million organization. The staff was working around the clock to keep pace with donations and demand.
However, once donors returned to their pre-pandemic lives, the contributions decreased while demand continued to soar. The organization approached this challenge with some creativity. For a look at how they and other clients managed pandemic-era uncertainty, you can watch the webinar of our executive roundtable discussing the top challenges facing nonprofits or read the article recapping the meeting.
It’s natural for nonprofits to keep one eye on escalating demand while keeping the other on economic indicators that could signal an impending recession. Jeff pointed out several reasons this short-term uncertainty can be a challenge:
- Reliable funding sources, such as corporate matching gift programs, may restrict charitable donations if their businesses are unstable.
- When charitable giving resumes, there’s no guarantee that corporate priorities will have remained the same, so nonprofits can’t assume they can forecast the same donations.
5 Steps for Nonprofits Facing an Economic Challenge
So when you get nervous and start feeling like you’re under siege, is it time to pull up the drawbridge and wait the crisis out?
Not really, he says.
If your nonprofit has a generous monetary reserve that it can draw on, retreating might be a viable strategy. But even in that enviable position, you can damage your organization’s long-term success.
This seems counter-intuitive. But if you assume everything will go back to normal after a brief period (which is reasonable), you’ve effectively prolonged the crisis. In not responding, you didn’t take the steps that would have placed your organization in a better financial position. This means you’ll likely have to cover revenue shortfalls for longer than you would have, had you addressed the crisis head-on.
While other organizations thrive because they took a more proactive approach, you'll be making up for lost time in a much more competitive environment. The bottom line is that nonprofits should guard against economic downturns, regardless of their bank account balance.
So what proactive approach will put your nonprofit on its best footing over the long term? He recommends five steps, starting with assessing your strategic plans, programs, and operations.
Step 1: Refresh your strategic plans.
Jeff argues that a time of economic uncertainty is the best time for a broad review and, if needed, a refresh or overhaul of plans, programs, and operations. While this may seem daunting, regular self-assessments must be part of your nonprofit's standard maintenance.
He mentions two reasons why this is a smart move during economic uncertainty.
- First, you developed your current approach to plans and operations based on economic conditions that may have been valid years ago, but those conditions don’t apply anymore.
- Second, with a refresh or even an all-out overhaul, you are, in effect, creating a new organization with the same charitable mission but one better focused on dealing with the current economic environment. This gives new donors a reason to support you and allows old donors to share in the excitement of a refined vision. This strategy, Jeff says, is how you thrive long-term.
How do you go about assessing your organization?
Let’s start by examining your mission and asking yourself some questions:
- Has the need grown for your nonprofit? How are you meeting that need?
- Remember the three or four significant activities you told the IRS about in your application for recognition of tax exemption? Time to determine if those activities continue to best use your organization’s time and resources.
- If you’ve successfully reached your fundraising goals, can you now expand your reach or activities? Have you explored other fundraising tools?
- Have other activities proven to be not as valuable as you initially thought? Now’s the time to take a fresh look and cross off any efforts that weren’t fruitful.
Step 2: Engage Your Board Members
Engage your board members as you review your strategic plans and goals. They will offer a unique perspective and are deeply vested in the success of your mission. Jeff pointed out that there are nonprofit business consultants you can call in for outside help; while this will increase the cost, additional donations might cover those costs once the process is complete.
Step 3: Determine what needs to be done to align with your strategic plan.
And think outside the box. Jeff believes that “this is where the difference between long-term planning and short-term siege mentality” really comes into play. Rather than cut employees because you’re preparing for a crisis (or because you’re in a crisis), think about how you can reallocate these employees to fit with new initiatives. See where you can consolidate functions and free up your staff.
Step 4: Evaluate your relationships with vendors.
Do you have long-term contracts that are no longer necessary? Do you still need the same level of service from vendors, or could you renegotiate?
Step 5: Review your donor communication.
Are you using a multi-channel approach to engage? Are there areas where you can cut costs, such as direct mail, and double down on automated email?
So you’ve done an internal assessment and refreshed your strategic plans and initiatives. You’ve tightened up your staff and where they’re allocated, examined your vendor relationships, and given your engagement methods a hard look. But what if you are still worried about keeping the lights on?
Jeff wants you to ask yourself a few difficult questions about what kind of help you need:
Is it time to seek financial aid or government grants?
I asked about federal loans available to small businesses and nonprofits under the umbrella of COVID relief. He indicated that, though these funds are no longer available, commercial banks offer nonprofit lending programs, and it’s a place to start.
Another idea is to research community foundations that provide grants for organizations targeting specific issues, such as food insecurity, homelessness, or at-risk youth programs.
Finally, the federal government is continuing to make billions of dollars available for infrastructure investment, including funds for programs like digital literacy and workforce training. If these are consistent with your charitable mission, your organization might find that its newly refocused activities can benefit from these funding sources.
Does it make sense for your organization to continue to operate independently?
This idea is worth considering when you’re looking down the road and realizing donations are likely to be scarce.
For some, the idea of a merger might give new life to your nonprofit. Jeff recommends reviewing the competitive environment related to your space and noting if there’s another nonprofit that would complement your team. Sometimes you’ll be more effective—and have a more significant impact—if you and another organization work together.
This, he explained, can take any number of forms. Perhaps a merger of two closely related organizations makes sense, pooling resources and talent. Mergers require a good deal of work to ensure members of, and donors to, both organizations are supportive. They will usually require a reordering of both officers and staff, but they can lay the foundation for a much stronger organization in the future.
If a merger isn’t appealing, can you partner with another organization to execute larger, more resource-intensive and cost-intensive efforts? Joint sponsorship of a conference or event relieves a burden on both organizations.
It is also possible that your organization’s charitable mission may be consistent with the mission of a trade association or other 501(c)(6) organization. Funding from such sources under a sponsorship agreement, or more formal arrangement, could help your organization’s bottom line.
Long-Term Benefits for Nonprofits
Clearly, the advice offered here is valuable as nonprofits shore up in anticipation of economic uncertainty. Additionally, we recommend rereading this advice annually and using it to give your nonprofit a checkup.
Continual refinement of goals and strategic plans, an evaluation of resources, and competitive research are all tools that will keep your nonprofit healthy and agile enough to weather any storm.
If you need legal advice for your nonprofit, give Jeff a call. If you're looking for an all-in-one nonprofit CRM, we've got great technology.