Nonprofits Must Navigate Stormy Economic Waters

Reading the headlines these days is enough to give anyone heartburn.  Just yesterday the stock market posted its largest drop since early 2009.  The odds that a double dip recession may be around the corner are rising and most Americans feel like we never really exited the last one.  The dysfunction and debt-addiction in Washington is dragging consumer confidence ever-lower.

What does this mean for nonprofits?  And how does the average small charity navigate such stormy economic waters?  First, let’s examine the impact of the current environment, then we’ll take a look at how to overcome it.

Impacts

1. Consumer confidence.  This is probably the biggest issue facing small charities…even more so than the unemployment rate and decline in disposable income (we’ll talk about those, too).  The global economy operates on a volatile mix of emotion, prediction and trust (or the lack thereof).  It is a self-fulfilling prophecy.  That is, if people believe the economy stinks, they stop spending money.  Businesses start selling fewer goods and services and must reduce payrolls.  Fewer people working means less disposable cash in the marketplace, so sales drop further.  And on and on and on.  Nonprofits suffer in this environment because even those with money are far less likely to give it if they are concerned they may be on the next pink-slip list.
2. Unemployment and lower spending.  This is the reality-based side of the consumer confidence cycle.  As the cycle spirals downward, people lose jobs and must cut way back on spending, including giving.
3. Legislative changes.  Just this week, after much theatrics, Congress approved an increase in the debt ceiling.  The deal eventually struck includes some cuts to the federal budget.  Some of that could impact charities that rely on governmental funding, but that is not the biggest risk.  Several trial balloons were floated during the debates, including the elimination of the charitable donation tax deduction.  And this is not the first time the Obama administration has floated this idea.  This tax deduction has long been considered to be an untouchable part of the tax code, but the events of the past few weeks leave us believing anything is possible.

Strategies for Overcoming

So, given the storm clouds, how does the small nonprofit manage these conditions?

1. Don’t be in denial.  The preponderance of the evidence cannot be ignored.  Times are tough and may get tougher.  Accepting that reality is the first step in being able to deal with it.
2. Don’t be in fear.  How is that possible, you may ask.  It is not only possible, it is essential.  Fear paralyzes and leaves you unable to act rationally and strategically.
3. Avoid debt.  ‘Nuff said.
4. Build a fan base.  We have said this before and I won’t rehash those strategies.  Go back and read some of our articles on fundraising for a refresher.  Suffice is to say that there is no better time to start transitioning from a transactional, consumer-based fundraising mindset to an investor-based mindset.  Create stakeholders who enthusiastically support your organization because they believe in it and take personal ownership in its success.
5. Be nimble.  Don’t be afraid to make changes if necessary.  Times like these require analysis and decisiveness.
6. Serve.  Even in these tough times, Americans still give enormous sums of money to charity.  Nonprofits that are seen to be accomplishing great things, however large or small, will have a much easier time attracting the fan base mentioned above.

It is tempting to be pessimistic when all you hear is bad news everyday.  Never forget that it is usually the contrarian, the one who doesn’t follow the herd, who comes out ahead when the storm clouds pass.  Your organization does not have to suffer in this economy.  It really can thrive if your leadership makes the right moves.