A lot of nonprofit leaders are asking us about how to prepare their organizations for the possibility of a recession.
So I decided to change up the format of my A Modern Nonprofit Podcast this week to talk directly to you about the steps you can take to prepare your organization for a potential recession:
6 Steps to Recession-Proof Your Nonprofit
1. Assess Your Cash Flow
First, you must understand if your organization bringing in more money than it is spending to see if your business is sustainable in the face of recession.
If you’re currently spending more than you’re bringing in, you’ll slowly start whittling down your savings accounts. And then you’re living on borrowed credit through operating loans, lines of credit, credit cards, and things of that nature.
If that is your case, I strongly encourage you to staff and figure out how you can flip things around to be consistently bringing in more than you spend over a long-term period, possible over the course of a year.
Having a grasp on your cash flow is ALWAYS important, but even more so in the face of economic and fundraising uncertainty brought on by a global or national recession.
2. Keep Your Debt to a Minimum
This is another everyday principle that becomes doubly important when the state of the economy is uncertain. You don’t want to head into a recession with a business that’s overly reliant on debt.
And it’s not just a matter of the health of your balance sheet, it’s about understanding, “What is this debt costing me?”
As in, how much of your much-needed cash are you tying up in debt payments every month? Every quarter? Every year?
Take a hard look at which debt you can pay off or restructure now to reduce your monthly payments. Ensure that you’ve got the cash to meet your obligations every month even if your cash inflows take a downturn due to macroeconomic factors beyond your control.
3. Increase Liquidity
Increasing liquidity means increasing your ability to tap into cash when you need it in the short term.
In times of recession and uncertainty, it’s important that you have as much of your cash available as possible, as opposed to being tied up in long-term investments or blocked by donor restrictions.
You should have at least 30 to 90 days of cash on hand, and don’t be afraid to lean toward the 90-day end of the spectrum if the recession intensifies or you experience a decrease in donations.
If you don’t have 30 days of cash on hand, design a savings plan to get your cash balance to at least 30 days. And I’m not talking about 30 days on your very best day, right before that payroll…
You should have 30 days’ worth of cash on hand on your worst day after the last payroll hits and before your funding comes in.
4. Revisit Your Investment Strategy
I’m NOT an investment advisor, but anytime there is a change in the economic environment, you should check with your investment advisor to be sure your strategy is still appropriate.
The risk of certain investments will intensify during a recession, so just be sure to make that phone call and get the professional advice you need.
5. Lock in Your Funding Early
When there is a recession on the doorstep, it makes sense to lock in your fundraising plan earlier rather than later.
So start talking to your longstanding donors right away, let them know your plans, and make the ask now rather than at the end of the year. Many of them will be glad to give now and be thrilled that you’re making a proactive plan to weather the storm.
If these folks are supporters of your work, they’ll be happy to do their part in ensuring your mission survives an economic downturn.
6. Create a Detailed Fundraising Plan
I can’t tell you how many times we’ve worked with nonprofits that say, “Well, we raised a quarter of a million dollars last year. So we’ll plan a 10% increase for this year and budget based on that.”
But if you don’t have a plan for matching last year’s donations AND getting growth, then you don’t really have a plan. You have a dream. And recessions are dream killers.
So I encourage you to start looking at who gave you money last year and where you think your money will come from this year. And then strategize how you are going to come up with those dollars.
Set goals and track your progress month-by-month. That way, if you’re $10,000 behind on your annual fundraising goal in June, you’ll know. And you can identify why you’re behind. Is it because you missed out on a grant you got last year? A major donor missed a payment? Or a shift in your special event schedule?
All of this boils down to knowing your numbers. Because no business–including nonprofit businesses– can operate successfully without knowing their numbers.
Is Your Nonprofit Recession-Ready?
By now, you should have a pretty good idea of whether you’re already prepared for a recession or if you’ve got work to do.
But there’s no need to panic, in any case.
Let’s be clear–as of this writing, economists agree that the US economy is not in recession today. But the warning signs are serious, and it’s better to start preparing now for a possible recession in 2023 and beyond.
So now is the time to start making measured steps to ensure your nonprofit can continue to serve your community in the case that an economic recession does arrive in the near future.
At The Charity CFO, we provide CFO-level financial guidance for nonprofit organizations, in addition to done-for-you bookkeeping and accounting services. So If you’re not confident in your numbers, or need some help optimizing your bookkeeping and accounting, check out our website to learn more: www.thecharitycfo.com.
Watch or listen to this episode on A Modern Nonprofit Podcast: