What do nonprofits need to consider in a volatile economy?

By now, most nonprofits have grown used to doing more with less. More people need our services, while donors (e.g., foundations, individuals, government agencies) have less to give. Still, recent swings in the economy have led many nonprofit professionals to ask, “Are things going to get worse?” and, “What do we need to do to protect ourselves?”

Be prepared

While we can’t know if and when things will get better (or worse), nonprofitanswerguide.org should be able to help you to prepare for economic volatility in the future. The Finance section, for example, is a very helpful guide to financial benchmarks for a healthy nonprofits and targets for cash reserves. If your organization invests its assets, you’ll also be interested in this section’s discussion of investment policies. The planning described here can go a long way toward managing your nonprofit’s risk during tough economic times.

Get structured in legal, fundraising and marketing

But financial sustainability is not just about finance. Our Legal section offers an overview of fee-for-service structures, which can be crucial to a nonprofit in any economy. Fundraising talks about the what, why, where and how of a funding mix that can help your organization toward a path to sustainability. Marketing and Communications gets into establishing your organization’s identity (or “brand”) and effectively communicating to key target audiences. That’s about positioning your organization for success, no matter what the economy looks like.

That said, as the stock market swings up and down on an almost daily basis, there is one other thing you should consider: Just as your 401k seems to be on a seesaw, the same is happening with foundation endowments.

Strengthen communication with foundations

Legally, foundations are required to dedicate 5 percent of their assets toward their missions each year (some do invest more by choice). The majority of foundation assets, however, are invested (such as in the stock market) with the idea that funds will ultimately be available to grant in perpetuity. But in a volatile economy, it’s hard to know what that 5 percent target will be in dollars from one year to the next. For right now, that means 2011 fourth quarter board meetings may well be tense and donors may still be working out the answers. Understand that, but also know that the best thing you can do in this environment is to learn how to communicate why your organization’s effectiveness makes it the best possible investment.

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