From your vantage point, how is the economy impacting nonprofit organizations?
A: It depends in part on their financial health going into 2020. Organizations that had strong reserves have tended to fare well this past year. Those that had endowments and other long-term reserves have seen those funds grow quite a bit. Many nonprofits operating with tight margins and low reserves before the pandemic are struggling now.
Fundraising hasn’t been affected as sharply as some had predicted, at least so far. This is partly because foundations and major donors are generally unaffected by the recession. But general contributions from working people have tailed off for many nonprofits, and that could take years to recover. The biggest impacts may be yet to come. Government support has buffered the initial effects, but that won’t continue indefinitely. Further, state and local governments may be looking at tight budget years in the near future, and many organizations have relied on those funding streams.
In short, we may be seeing an evolutionary event which many nonprofits may not survive.
What strategies should organizations be considering in 2021?
A: The key is to be proactive, regardless of your current financial health.
Develop a financial plan. Build and protect operating reserves. Budget conservatively—meaning err on the side of cutting costs and modest revenue assumptions—have contingency budgets in your bottom desk drawer, and be willing to revise budgets during the year if things are going off track. Also, consider strategies like merger or restructuring, which may be excellent ways to build resilience and position your organization for post-recession growth.
But don’t wait to see just how bad it really is to start considering strategies—by then it really may be too late.
This is a very challenging period for nonprofit leaders, but I’m optimistic that many will use this time to re-think what’s possible and take active steps toward a successful, and different, future.
Scott Schaffer, Principal of Public Interest Management Group, is an experienced nonprofit leader and consultant with a background in economics, finance and behavioral science. He is a four-time past CEO of regional, statewide and national nonprofits. He’s directed growth, designed financial turnarounds and built high-performance organizations in the public health, environmental and housing fields.
Scott will be facilitating our workshop Merger: A Strategy for Nonprofit Sustainability on Tuesday, March 23rd. Join us!