With economic uncertainty continuing, not-for-profit organizations should proactively develop and implement strategies to survive a potential recession. Strong management skills and effective governance will help you continue delivering your mission and sustaining operations while weathering possible financial strains. Here are four strategies you can implement to best position your organization to navigate potentially challenging circumstances.
1. Focus on reserves planning
One critical activity for leaders of not-for-profit organizations experiencing these conditions is determining whether their organization has an appropriate level of reserves and financial flexibility. One purpose of reserves is to help organizations mitigate the impact of unbudgeted and undesirable external events, like an economic slowdown or recession. In addition, reserves can help fund new activities and provide the financial flexibility to benefit from strategic opportunities.
Appropriate levels of reserves are important – both during a recession and more generally – because they allow you to:
- Mitigate the threat of a reduction in formerly stable revenue streams (e.g., grants, contributions, dues)
- Absorb market-related risks and losses in your investment portfolio
- Avoid having to implement potentially drastic cost reduction measures that can conserve resources in the near term but compromise the quality of your workforce, delivery of services, strategic trajectory, and long-term attainment of your organization’s mission
2. Analyze core business operations
Not-for-profit organizations should have financial flexibility as a goal, as described in the last section. However, they should understand and analyze all their core business operations to determine whether those operations are generating a surplus or a deficit. Core business operations represent the programmatic activities the organization must perform to achieve its mission. When programs result in a deficit, it creates a financial imbalance that needs to be covered through nonoperating or nonrecurring revenues or covered by other programmatic surpluses. Those types of revenue streams are most at risk during a recession. For instance, an organization could be relying too heavily on its investment spending rate (endowment draw) to cover such losses. When market performance declines, that coverage is no longer available, thus contributing to financial inflexibility.
If your organization has programs generating a deficit, determine the key reasons. You can start by asking the following questions:
- Is this program still truly critical to our organization in terms of mission alignment?
- Can we reduce expenditures in certain areas while maintaining the quality of our programs?
- Are there ways to increase our revenues to support these programs?
If the answers to the above questions are no, management should consider restructuring core operations. This will not only increase financial flexibility but also have broad implications for strategic planning and future initiatives.
3. Engage your board
A not-for-profit’s board can be one of its most valuable assets, especially during financial and operational turbulence and uncertainty. Management should actively engage with its board to ensure it understands the current environment affecting their organization and to leverage board members’ individual skill sets and resources in guiding and sustaining the entity. In addition, the board can aid management in focusing on the organization’s future and the risks accompanying its strategic objectives. When management and the board communicate and collaborate effectively and transparently, it helps leadership contemplate all solutions and promotes cohesiveness and alignment. The expertise and contributions of the board can significantly support organizations that are experiencing financial or operational difficulties.
4. Keep employees engaged and motivated
Like your board members, your employees need to stay engaged and motivated on how their efforts align with mission fulfillment. You can advance toward that goal by maintaining transparency and communication with them. Make sure they understand the challenges facing the organization and how their individual efforts will contribute to its success and sustainability. An open communication channel with your employees can help reaffirm their commitment to the organization and be a key step in surviving a recession. Transparency about any budget cuts or operational restructuring is critical to ensure everyone is on the same page and can work together to continue providing valuable services.
In addition, make it a priority to invest in the development of your employees. Not only does this build loyalty, but it also enables them to hone their skills and grow professionally during economic hardship. Investments in employee development and training can increase productivity and improve morale, even during a recession.
Finally, it’s important for your organization to have an established system of rewards and recognition for outstanding performance by employees during challenging times. This can be as simple as verbal praise or public recognition at team meetings or include more tangible rewards such as gift cards or other perks. This way, organizations can show their appreciation while encouraging their employees to work even harder in a difficult economy.
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