Nonprofit Preparation for Recession

A Nonprofit Attorney’s Advice for Nonprofits Preparing for a Recession: How to Ensure Your Nonprofit Survives and Thrives During Hard Times

Refugees are given food and water by a relief worker

Are you looking to prepare your nonprofit for a potential recession? We’ve helped nonprofits long enough to know that hard times can be tough on nonprofits, but they don’t have to shrink or shut down the organization. In fact, some nonprofits not only survive, but thrive during crises. 

So what do the nonprofits that thrive during tough times do differently than those that shrink or close their doors? Here are our nonprofit attorneys’ tips on preparing your nonprofit for a recession so you can come out on the other side better than ever:

1. Nonprofits that thrive during tough times plan ahead.

If things are going well for your nonprofit, the time to start saving for a rainy day is right now. Maximize your revenue, whether it’s through program service revenue or an extra fundraising push at year’s end. And then, save those funds. Even renting out a spare space in your office can bring in that extra cushion of funding. Always plan to have some savings in your budget. Most grant providers won’t want to contribute to that, so general donations or program service revenue can help you build up savings.

A word of caution though: Resist the urge to cut costs left and right. Most nonprofits I interact with already cut costs so much, and limiting that even more could actually be detrimental. 

Here’s an example: if you have a printer that’s old and prone to breaking down regularly, it costs your team time every minute they have to spend trying to fix it. The old model might also need ink and toner refills more frequently than a newer model. And let’s say you have an event coming up and the printer breaks again. Your staff might have to send the flyers off to a professional printing service to get printed on time. In this case, you’ve wasted time the staff could’ve used doing other things, the ink, the toner, and the money it took to have someone else print the flyers. While replacing the printer might seem like the more expensive option up front, if it runs well, it’s likely going to be cheaper over the course of the year. 

Remember, surviving through a recession isn’t just about what can get you through right now, it’s what will last you through the 6-24 months a recession may last.

2. Nonprofits that thrive aren’t afraid to team up.

The nonprofit world in most areas is small and tight-knit. Use that to your advantage during tough times by building relationships with other nonprofit leaders. Grant providers love to see nonprofits teaming up to provide services to those in need, as it often results in a population getting more services for less money. Partnering up with another nonprofit could help you provide more services or expand your service area without incurring as much cost as if you go it alone. 

There are several ways to go about it that can be beneficial to both your organization and the population you serve. A joint venture could be the way to go if you have a specific program or project that would benefit from some collaboration. There are also ways to legally team up with a for-profit company to get the job done. They can have different areas of expertise and resources, which, when pooled, can go further. Partnerships can provide this kind of structure for a longer period of time.

Or, if your nonprofit is duplicating services with another nonprofit in your area, it might be time to explore a merger. While the term merger gets a bad reputation, for nonprofits, a merger can help you expand your services while shrinking administrative costs. If you do go this route, it’s wise to have nonprofit-specific legal counsel to help with the process, as there are laws that apply only to nonprofits when it comes to mergers or closures. Reach out to us for a consultation if you’d like assistance with these options.

3. Nonprofits that thrive understand balance.

While the nonprofit and for-profit sectors are very different, this is one lesson from corporations that could greatly benefit the nonprofit community. A study of 4700 companies in the Harvard Business Review looked at how they fared in economic downturns and how well they recovered after. What they found was that the key doesn’t lie in just cutting costs and hunkering down, but it also doesn’t lie solely in taking risks and making big moves. The companies that survived weren’t always the biggest or brightest prior to the recession either. 

So what’s their secret? The companies that survived the recession and pulled out ahead after were masters of balance, as they both cut costs where they could and invested in growth where they could. It takes both common sense caution and a willingness to innovate. 

For example, look for ways to innovate your process to make it more efficient so you can cut costs without having to lay off staff. Or, consider shutting down one program line so you can offer a more successful program to a larger service area. No matter how you go about it, finding that balance is what is key to surviving hard times.

4. Nonprofits that thrive use volunteers to their advantage. 

Rather than push your staff to their limits and risk losing them, use volunteers to keep your employees happy and your costs low. You’ll save on labor costs and on the cost of turnover. Turnover of one position can cost anywhere between half the annual salary and two times the employee’s salary, so preventing turnover saves your nonprofit valuable resources during a downturn. 

For example, if you manage five social workers and each social worker has an hour worth of scanning papers every week that drives them nuts, outsource all five social workers’ scanning duties to a volunteer or two. You’ll keep your staff happy, and scanning is a simple enough task that most volunteers could get the job done. Don’t underestimate the power of volunteering on your donation numbers either. Volunteers are more likely to donate to the organizations they volunteer with, so creating new volunteer opportunities can both save money and increase donations.

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