Talk of inflation and an impending recession can be daunting for nonprofits that, unlike businesses, can't just raise prices to offset added expenses.
The Charities Aid Foundation, which studies inflation's impact on charitable giving, reports that donations lose their value as the cost of goods and services rise, requiring even more donations just to keep pace.
"Whether you're a member of the business community serving on a nonprofit board, or leading a nonprofit, there are some guideposts to be mindful of while navigating the current economic landscape," said Evan Walter, institutional wealth relationship manager at BOK Financial®.
4 trends on the horizon
1. Economic conditions impact donor confidence. Inflation, and the possibility of recession, can have psychological effects on donors, according to the San Diego Foundation.
"This shift is an invitation to diversify your donor base. If you've relied solely on a limited group of corporations, individuals, and foundation giving, now might be time to seek out and engage a broader pool of individual donors," Walter said.
2. Increase in need. Depending on your nonprofit's mission, it's safe to assume there will be an increase in need during a more challenging economic cycle, so operations and planning need to adjust accordingly. "Nonprofits may consider re-visiting their case for support in their solicitations for general operating expenses," Walter said.
3. Increase in capital costs, especially for expenditures that were unbudgeted. Lingering inflation is hitting organizations' bottom line and the higher costs need to be accounted for.
"This applies to things like replacing an HVAC system or upgrading technology. Things will simply cost more in the next fiscal year," Walter said. "Consider creating, in addition to an operating reserve and permanent endowment, a conservatively managed emergency fund for significant, unbudgeted expenses."
4. Consider adjusting overall fundraising strategies. Being transparent will likely go a long way.
"You'll need to make donors more aware of the impact of inflation on the mission and organizational efforts. In times of economic uncertainty, we often see a decline in donations," he said.
With prices on the rise, nonprofits worry giving will be down. "With high rates of inflation and talk of a recession, donors may choose to postpone making larger gifts until things feel more stable," said Walter. "People are going to be more likely to make purchases that are based on personal needs rather than philanthropic giving."
With this in mind, Walter suggests nonprofits consider re-visiting their levels of organizational financial transparency and communication with their current donors and community.
"This could also serve as a good opportunity to engage a new generation of charitable donors," said Walter. "Be willing to share your mission, challenges and how economic shifts are impacting your day-to-day."
In times of economic uncertainty, Walter also recommends nonprofits shore up their financial defenses. If an organization doesn't have one, they should consider an investment policy statement and a spending policy to govern and make best use of every dollar. Additionally, boards and committee members must be educated on these financial policies and best practices; and review them on a regularly scheduled basis.
"Through challenging economic cycles, it's so valuable to have a strong relationship with a financial partner that knows and is empathetic to your organization, your mission and your challenges," Walter said.