A recession looming on the horizon can feel daunting about the state of nonprofits the new few years. Typically during an economic downturn money circulating throughout the economy slows and consumers are less inclined to part with their money for general goods and services—so you start to wonder how much a recession actually affects an individual just giving their money away in exchange for nothing in return.
Source: The Conversation | Data from Lilly Family School of Philanthropy
Unfortunately, if any of the last recessions are an indicator of the coming one, charitable givings are expected to go down as we face another economic downturn. During the Great Recession, total giving dropped by 7.2% in 2008 and 8% in 2009. Although the time after the Great Financial Crisis was the recorded worst moments of charitable giving, it’s very likely that the next year to 18 months will see a significant slow-down of donations for nonprofits across the industry.
So what do you do? Prioritize sustainable cash flow as much as you can.
Convert your Largest Donors to Start Giving Monthly
The average donor in the United States only makes 2 charitable gifts a year, giving about $813 per donation. This means during an economic downturn, it’s very easy for the majority of people to cut their charitable givings if their led to believe that giving large sums of money once or twice a year is the preferred way of giving.
If you’re a growing nonprofit, reach out to your largest donors and consider speaking to them about breaking their large annual contribution into monthly donations. Contributions given monthly are more sustainable for your organization and much more manageable for your donors than a one-time large-sum donation.
Cut Unnecessary Administrative Expenses
Any organizations will always have administrative costs and just like companies, nonprofits too get bloated over time. Expensive software, building expenses and rent, redundant human resources—every organization has it. A recession provides an opportunity to cut back, reduce expenses, and become lean.
Source: Sequoia Capital
A nonprofit should consider that the last large fundraising event that they had could be it’s last and cutting down early and efficiently could not only save the organization as a whole, but also position it for significant and sustainable growth. A lot of these decisions will be hard, especially if it involves cutting back on staff, but could be the most responsible action taken for the sake of the nonprofit.
Invest in Grant-Making
If the majority of your fundraising comes from either crowdsourced or large contributors, both of which can be susceptible to reducing due to a recession, then applying to grants could be easier way of finding large lump sums of funds that is much more recession proof. Legally, private grant-making foundations are required to disburse at least 5% of the value of their endowment every year.
Meaning that if a recession is imminent, then grants would be the bit of free money available that wouldn’t be affected by it. Although applying for grants can be an arduous process, oftentimes requiring various paperwork and drawn-out application processes, the payout for many of them can sustain nonprofits that any typical fundraising initiative.
Ask your Bank for a Line of Credit
A line of credit is a flexible loan from a bank with a defined value that can be accessed whenever needed and can be paid back whenever necessary. Think of it like a credit card with large enough credit limit that could sustain a business or organization for an extended period of time, but typically with a much lower interest rate.
Most nonprofit receive the bulk of their funds at the end of the year, and if a recession undercuts the availability of funds, it could lead real cash flow constraints throughout the rest of the year. Having a line of credit that your nonprofit is able to access whenever necessary give your organization more of a runway when it needs to figure out how to get back on track.
Enduring through a recession is tough, but it is more than just possible. Nonprofits both small and large have been able to survive through the worst economics situations in the last century and will continue to thrive regardless of the outcome of the economy may be.
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- https://theconversation.com/what-happens-to-charitable-giving-when-the-economy-falters-133903#:~:text=During economic downturns%2C more people,they decrease their giving accordingly.
- https://doublethedonation.com/nonprofit-fundraising-statistics/#:~:text=The average donor in the,of their country of residence.