The vast majority of nonprofits around the country have been stretched thin over the past couple of years. With labor shortages, financial strains, and once-in-a-century pandemic stresses, it’s been an extremely difficult couple of years for those who operate nonprofit organizations.
But just as the worst of the pandemic is hopefully behind us, the financial setup for nonprofits looking ahead to 2023 is not attractive. Foundations typically give 5% of their total annual assets to nonprofit organizations each year; the amount available to give to nonprofits is directly tied to the performance of financial markets, which has been dismal in 2022. The stock market (as measured by the S&P 500) declined by as much as 25% from its historic peak in November 2021 and has since recovered only a portion of those losses. This means less money will be available for grants and donations.
The 2023 problem is compounded by the fact that many nonprofits are already in a state of financial strain. More than 40 associations have released surveys and reports detailing the financial impact of the pandemic on nonprofit organizations, and in nearly every case the news is concerning. Because most foundations are locking in their 2023 budget now, if they haven’t already, 2023 giving is going to reflect the 15-25% decline in their assets tied to the markets.
However, the situation isn’t going to be as bleak for some as it may sound.
In conversations with Sam Reiman, the director of the Richard King Mellon Foundation, and Presley Gillespie, president and CEO of Neighborhood Allies, we uncovered 5 opportunities for nonprofits to re-think their income strategies in the months ahead.
1. Acknowledge the Reality of the Challenges Ahead by Diversifying
If there is one truth about predicting the future of the economy, it is generally unpredictable. Some indicators right now point to a stock market that could recover as it has in the last month, while others are predicting a difficult time ahead. Either way, it is important to recognize that 2023 budgets are likely set already so any improvement in the financial markets from here will likely impact 2024 giving, not 2023. So what should you do?
“Diversification is going to be the key to surviving the proverbial storm if you are running a nonprofit,” says Sam Reiman, director of the Richard King Mellon Foundation. Reiman, whose organization provides financial support for a variety of nonprofits, encourages leaders to invest the time to forge new relationships with potential supporters.
“You must approach fundraising through the lens of relationships,” Reiman says. “Our work is not transactional.” An overreliance on one funder can result in problems, even if you have done all the right things. To this end, Reiman stated: “Diversification has always been important but it is even more important at these moments in time.”
2. Think Entrepreneurially About Revenue
Presley Gillespie, who leads the community development intermediary Neighborhood Allies in Pittsburgh, encourages leaders of nonprofits to be more aggressive and business minded in their organization: “It all starts with a more entrepreneurial culture. Are you innovating? Is your staff empowered to make decisions? Are you creating strategies for financial sustainability?”
He says that too many nonprofits make the mistake of thinking that “making money” is forbidden. But providing some services for payment is a legitimate source of revenue that shouldn’t be overlooked.
“Fee-for-service is another part of the financial sustainability” that should be embraced more in the nonprofit sector, says Gillespie. “Create opportunities based on your organization’s value proposition — what you can do uniquely well — and develop fee-for-service models around that. You’ve got to mix it up!”
3. Actively Strengthen Your Network of Relationships
A broader network of relationships will provide new opportunities for funding sources. Networking has remarkable exponential power. You should be ever-searching for folks who can say, “I know someone who’d love to be a part of this” instead of only touching those that you think should fund you now. In the months ahead, increasing your time invested in networking will be essential.
To network well, you have to be social. Attend events related (or even semi-related) to your organization’s goals and make a plan to connect with at least two or three new contacts at each one. Keep initial conversations short and to the point, exchange contact info, like a post on their preferred social network, and find a time to reconnect. You might even consider hosting networking events yourself and find ways of making it worth their while to attend.
Gillespie and Reiman both noted that storytelling should be an integral part of your relationship building, too. Gillespie specifically stated that “you need to tell the story and share why the work is important. That’s what moves the hearts and minds of people — the funders, the stakeholders, and the folks that you want to help.”
4. Make a Plan A and a Plan B
Even the best of plans can be deterred, so create backup strategies to prepare for the inevitable obstacles, setbacks, or failures. Be specific, too; if X% of your budget depends on grants, consider what your organization might be able to accomplish if part of that budget temporarily disappeared. You might also explore new funding opportunities such as fundraisers or new foundation grants.
A number of foundations during the earliest days of the pandemic focused all of their giving on feeding the hungry and income replacement for those out of work. This left long-term education-focused nonprofits at a loss, even though their missions are noble and needed.
“Those who are closest to the opportunities are the ones who are closest to the solutions,” Gillespie says. While it’s certainly helpful to seek guidance and insight from professionals outside of your organization, don’t make your plans until you talk with the people who live, work, invest in, and volunteer in the communities you serve.
With any plan — whether it’s A, B, or otherwise — Sam Reiman tells nonprofit leaders to think in terms of longevity. “It’s the long game that organizations still need to be focused on to not chase after short-term opportunities at the expense of the longer-term mission,” Reiman says.
5. Scale Your Work by Leveraging Technology
One of the primary positive outcomes of the pandemic on nonprofits was organizations “adapting programming to the digital realm.” said Reiman. With people stuck in their homes for extended periods, nonprofits needed to identify new ways to reach their constituents.
Some of the basic business functions for nonprofit organizations can be done or optimized with technology. Tasks such as accounting, scheduling, procurement, and communication can be streamlined through a handful of software programs, minimizing the need to add costly staff to your payroll.
Along the way, organizational leaders found that technology could also be used to tap into new revenue streams. Healthcare systems, for example, innovated new methods and standards for providing care to their patients. Services that were rare or even non-existent just 10 years ago are now commonplace. In fact, health systems are now being paid for telehealth visits.
Secure Your Future
Keep in mind that if the stock market continues to recover before the end of the year and/or remains stable in 2023, the grant money you’re planning for may be safe. If that’s the case, all the work you’ve done to prepare for a possible downturn will still be to your benefit. The concrete steps you’ve taken to be proactive will cause your nonprofit to be more financially stable.
If you take the time and effort now to invest in finding new income sources for your nonprofit, you’re taking concrete steps to ensure that your organization is ready for the twists and turns of the future economy. Be wise now and you’ll thank yourself later.
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