Navigating economic turbulence: a nonprofit's guide

From AmeriCorps to victim support services, many nonprofits are going into survival mode, worried that funds they’ve long depended on could soon disappear due to cuts in federal funding.

Nonprofits should always be prepared for the loss of a revenue stream, said Evan Walter, a BOK Financial® institutional wealth relationship manager who specializes in working with nonprofit organizations. He shared tips on how nonprofits can proactively prepare for this type of challenging situation.

Build an emergency fund
Just as individuals should have an emergency fund to cover a job loss, unexpected repair or health issue, nonprofits need emergency savings to cover a loss in funding or unexpected expenses, Walter said.

"We counsel our clients to have a 90-day operating reserve minimum, ideally six months. That reserve should be in cash or cash equivalents like money market accounts. If invested, it should be very conservatively invested to cover unbudgeted capital expenditures," he explained.

Have a contingency plan
Nonprofits also should operate with the assumption that any funding streams that disappear may not come back in five years, 10 years or ever, Walter noted.

To prepare for these inevitable funding changes, nonprofits need to create a contingency plan, which involves:

• Doing an audit of the programs that the organization is currently offering.
• Prioritizing the programs making the biggest impact.
• Noting what programs could potentially be cut.
• Researching other organizations delivering similar programs.
• Looking for potential alliances with organizations that are offering programs you can no longer afford to produce.

By forming these relationships, nonprofits can work together to maintain a complete offering. "You're stronger together than trying to work individually," said Walter.

Avoid tapping endowment funds
When external funding sources disappear, it may be tempting for organizations to tap into endowment funds. However, don't do it. Walter warned.

"Those endowment funds are intended to go toward a specific purpose or objectives into perpetuity,” he said. “Those obligations aren't going to change regardless of what the economy is doing. Endowment funds are not there to be utilized for the organization's operational needs; unless that was the donor's intent, or the endowment was originally set-up to be designated by the board.”

Steve Wyett, chief investment strategist at BOK Financial, added that endowment funds should be treated like any long-term investment, focusing not on short-term drops in stocks, but rather managing volatility to maintain the fund’s overarching objectives. “You want to manage risk to still make the most money,” he said.

Ensure appropriate insurance coverage
Insurance can be another key risk management tool for nonprofits, Walter said, as it may protect organizations from situations like funds being wiped out from a natural disaster hitting their headquarters or from an employee injury situation.

While insurance can be another expense line item, protecting the organization's assets is worth it, he noted. A reputable business and commercial insurance broker can assess potential liabilities and determine what adequate coverage options would look like.

Stay diversified
Just as an individual should have a diversified portfolio of investments to weather ups and downs, so should a nonprofit organization.

"Investment policies should be reviewed at a cursory level annually," said Walter. "The board of directors or investment committee should also take a deeper dive every three to five years."

Diversification is also a key word when it comes to the type of donors an organization acquires and retains. Wyett said the pullback on government funding will likely put more pressure on individual donors and corporate sponsors to fill the gap.

"Regardless of whether or not an organization receives federal or state money, it’s always important to diversify their donor base," Walter said. “That means having a variety of donations coming from individuals, foundations and corporate sponsors.”

Communicate clearly and constantly
Finally, Walter cannot stress enough the importance of constantly communicating with the donor base. "That doesn't necessarily mean asking for money all the time but keeping donors informed to let them know what's going on with the organization and the positive impact the organization is having."

He added that when donors know their money is making a difference, they will feel compelled to give more. "They will see their gift as an investment in the organization to enact services the community needs."

Wyett agreed, "Nonprofits have the ability to raise money if they show they're using the money in the right kind of ways."

“The best thing nonprofit leaders can do is stay engaged with their donor base and continue to tell the story about what they're doing.”

- Evan Walter, institutional wealth relationship manager