Nonprofit organizations face many challenges during periods of economic uncertainty. These periods require them to budget effectively in a volatile environment, and that is not easy. They need to plan for their income and expenses realistically and strategically, while also adapting to changing circumstances.
The pandemic in 2020 was a major setback for many nonprofits around the world. According to a survey by The Conversation, 69% of these organizations reported that they had to cut programs or services due to the economic impacts of the pandemic.
A separate survey by La Piana Consulting revealed that COVID-19 and the resulting economic shutdown caused a decrease in revenue for 73% of non-profit organizations. This was mainly due to the difficulties of conducting regular operations and initiatives amidst strict lockdowns and social distancing measures.
The cancellation of fundraising events and the withdrawal of many volunteers due to health and safety concerns further compounded the challenges faced by these organizations. Eventually, this led to a 6% decrease in individual giving during the first quarter of 2020 compared to the previous year, as reported by The Chronicle of Philanthropy.
COVID-19 had a significant negative impact on nonprofit organizations in 2020, and many nonprofit leaders expected this impact to continue into 2021 and beyond. The pandemic has led to widespread job losses, decreased charitable giving, and disruptions to fundraising events and activities, all of which have hurt the ability of nonprofit organizations to operate and provide services.
In addition, the pandemic has increased demand for some nonprofit services, such as those related to food insecurity and healthcare, while making it more difficult for nonprofits to provide those services due to safety concerns and resource constraints.
As a result, nonprofit leaders are facing significant challenges in navigating the ongoing effects of the pandemic and maintaining their organizations’ viability.
To ensure that their organizations can continue to fulfill their missions, nonprofit leaders must act with strategic thinking and caution.
Steps To Take To Ensure Financial Sustainability
Nonprofit leaders face numerous challenges in times of economic uncertainty. To ensure financial sustainability during these times, they should take several steps to maintain stability and plan for the future.
Develop A Comprehensive Financial Plan
Firstly, nonprofit leaders should develop a comprehensive financial plan that includes realistic revenue and expense projections. This plan should be based on a thorough understanding of the organization’s finances and include various scenarios that account for potential economic challenges.
Additionally, it should include a focus on retaining existing donors and cultivating relationships with them, as they are more likely to continue giving during hard times than new donors. This financial plan will serve as a roadmap for the organization, guiding its decisions and helping to ensure financial sustainability.
Invest In Marketing And Branding Efforts
Secondly, nonprofit leaders need to invest in marketing and branding efforts to promote their mission, vision, and impact to potential donors and supporters.
Establish And Maintain Relationships With Key Stakeholders
Thirdly, nonprofit leaders should establish and maintain relationships with key stakeholders, including donors, volunteers, and community partners. During times of economic uncertainty, it is essential to keep stakeholders informed about the organization’s financial health and plans for the future.
Nonprofit leaders should communicate regularly through newsletters, social media, and other channels to keep stakeholders engaged and connected to the organization’s mission.
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Fourthly, nonprofit leaders should use existing technologies to their fullest potential to optimize fundraising processes and reach new audiences. Sage Intacct ranks top among the accounting cloud software in the market. Click here to learn more!
Lastly, nonprofit leaders will want to engage their board of directors in the organization’s financial sustainability efforts. The board should play an active role in developing and implementing the financial plan, overseeing the organization’s finances, and providing strategic guidance to help the organization navigate economic uncertainties.
Nonprofit leaders should ensure that the board members have the financial knowledge and skills necessary to make informed decisions.
How To Prepare For Economic Instability
Economic instability can significantly impact the ability of nonprofit organizations to address the needs of vulnerable populations and advance social causes. As such, nonprofit leaders should take proactive steps to prepare for economic downturns and other financial uncertainties.
Diversify Revenue Streams
One way nonprofit leaders can prepare for economic instability is by diversifying their revenue streams. Overreliance on a single source of funding can leave an organization vulnerable if that funding source is disrupted.
Nonprofit leaders can diversify their revenue streams by exploring alternative funding sources such as grants, donations, and partnerships with other organizations.
Diversifying revenue streams can also involve exploring fee-based services, such as training or consulting, that can generate additional income for the organization. By diversifying their funding, nonprofit leaders can mitigate the risk of losing their primary funding source.
Prioritize Financial Transparency and Accountability
Nonprofit leaders should also prioritize financial transparency and accountability to build trust with stakeholders, including donors, partners, and beneficiaries.
Financial transparency involves making financial information readily available to stakeholders, such as annual reports, financial statements, and audit reports.
Financial accountability involves ensuring that funds are used in accordance with their intended purpose and that the organization is using its resources effectively and efficiently.
By demonstrating financial transparency and accountability, nonprofit leaders can build trust with stakeholders and increase the likelihood of continued support, even during times of economic instability.
In addition to the above steps, nonprofit leaders can prepare for economic instability by implementing risk management strategies, which involve identifying potential risks and developing plans to mitigate them.
For example, nonprofit leaders can identify risks related to changes in funding sources, economic downturns, or natural disasters, and develop plans to address these risks.
Risk management can also involve building cash reserves to help the organization weather unexpected financial challenges.
Finally, nonprofit leaders can prepare for economic instability by developing strong partnerships with other organizations in their community.
Collaboration and partnerships can help nonprofit organizations access new funding sources, expand their reach, and share resources during times of economic uncertainty.
Nonprofit leaders can build partnerships by attending community events, engaging with other organizations on social media, and participating in collaborative initiatives that advance shared goals.
Strategies To Create A Successful Budget During Economic Instability
Nonprofit leaders may struggle to develop a successful budget amidst economic instability. Nevertheless, there are strategies they can use to navigate the situation and ensure their organization’s financial stability.
Align The Budget With Your Organization’s Mission
The first strategy is to align the budget with the mission, vision, and goals of the organization. Leaders should ensure that the budget reflects their strategic priorities and supports their intended results.
Furthermore, they should carefully scrutinize each line item in the budget and identify opportunities to cut costs without compromising their programmatic objectives.
Create A Contingency Plan
Nonprofit leaders can also implement a contingency plan, which outlines how their organization will respond to different scenarios, such as a decline in funding or an unexpected increase in demand for their services.
They should consider different possibilities for their organization’s revenue and expenses, such as best-case, worst-case, and most likely scenarios, and prepare accordingly.
By having a contingency plan in place, nonprofit leaders can respond quickly and effectively to changes in the economic environment.
Real-Time Monitoring of Data
Finally, nonprofit leaders should track their organization’s actual performance against their budgeted targets, and analyze the variances and trends. They should also review and update their budget periodically, based on new information and changing circumstances.
How To Adjust Your Budget When Economic Uncertainty Strikes
Leaders often struggle with nonprofit budgeting during times of economic uncertainty.
When a sudden economic shock occurs, such as a recession or market downturn, nonprofit leaders may find that their funding sources become more limited or that the demand for their services increases while donations decrease.
In these circumstances, they need to be proactive and flexible in their financial management. To adjust their budgets during times of economic uncertainty, nonprofit leaders need to assess the impact of economic uncertainty on their organization.
- They should consider the impact on their revenue streams, such as donations, grants, and contracts, as well as their expenses, such as salaries, rent, and utilities.
- They need to analyze their cash flow and reserves to determine their financial position and identify potential risks.
- Nonprofit leaders should prioritize their programs and services by identifying the ones that are critical to their mission and focusing their resources on those areas.
- They may need to cut back on nonessential programs or reduce staff hours to ensure they can continue to provide essential services.
- They will also want to explore new funding opportunities and engage in more aggressive fundraising efforts to secure donations from individuals and corporate sponsors.
- Another thing to do is focus on cost-cutting measures. Nonprofit leaders should identify areas where they can lower costs without impacting their core services.
- They may consider renegotiating contracts with vendors, reducing their marketing expenses, or consolidating their office space.
- Last but not least, nonprofit leaders should work with their board of directors, staff, and donors to develop a plan to address the financial challenges and ensure the long-term sustainability of the organization.
Outsource Your Accounting Function
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Jo-Anne Williams Barnes, is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA) holding a Master’s of Science in Accounting (MSA) and a Master’s in Business Administration (MBA). Additionally, she holds a Bachelor of Science (BS) in Accounting from the University of Baltimore and is a seasoned accounting professional with several years of experience in the field of managing financial records for non-profits, small, medium, and large businesses. Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. Additionally, Jo-Anne is a member of American Institute of Certified Public Accountant (AICPA), Maryland Association of Certified Public Accountants (MACPA), and Greater Washington Society of Certified Public Accountants (GWSCPA) where she continues to keep abreast on the latest industry trends and changes.