Financial Constraints Are Closing Nonprofits

Nonprofits face an uncertain future in the year ahead. While their services have never been more in demand, the lingering effects of a global pandemic and economic recession are undermining their efforts at a critical time.

The results are devastating. Many nonprofits are laying off or furloughing staff, reducing services, or closing their doors altogether. Nearly 75% of organizations are receiving declining contributions, leaving more than half with less than three months of operating revenue and nearly 20% with just a month of financial runway. As a result, The Washington Post estimates that one-third of nonprofits will go out of business before the pandemic ends.

To survive, or even thrive in the year ahead, nonprofits will need to adapt by introducing new efficiencies, maximizing their impact and attracting new fundraising opportunities. In an increasingly competitive environment, better employee expense and time management practices can facilitate these efforts, serving as the technical backbone for nonprofit’s essential services. Here’s how:

No. 1: Focus on Efficiency Without Compromise 

When organizations hit hard times, calls for new “efficiencies” are often a not-so-subtle mandate to reduce staff, services or both. While it’s true that organizations will need to do more with less, optimizing program efficiency doesn’t have to require a full-scale service drawdown.

Better time and expense management practices can help identify and promote new efficiencies, highlighting opportunities to reduce spending and safeguarding essential initiatives. Specifically, time and expense tracking highlights:

• Spending. Most nonprofits don’t have a reputation for loose or reckless spending, but that doesn’t mean that costs can’t balloon over time. Like a frog will boil in a slowly heated pot, incremental spending increases create significant outcomes down the line. Time and expense management can identify areas of increased spending, allowing leaders to realign budgets appropriately.
• Personnel allocation. Effectively deploying staff and volunteers is critical for struggling nonprofits. Time tracking creates insights into human capital allocation, ensuring these assets are directed to the most essential projects. 
• Resource management. Nonprofits exist for a particular mission, and struggling nonprofits need pinpoint focus on their purpose. Time and expense management helps leaders align resources and purpose.

Creating new efficiencies can’t solve every financial problem, but thriving organizations will take steps to maximize effectiveness by uniting financial and personnel resources to purpose and outcomes.

No. 2: Ensure the Mission Is Met 

With so many needs created by the pandemic, nonprofits have a significant opportunity to serve their communities and constituencies. However, mission creep and organization drift can undermine the essential mission, making it more difficult to thrive or even survive in a challenging environment.

For many nonprofits, this may require a holistic values assessment. Realigning or even reimagining your nonprofit now for the COVID-19 era will have immediate benefits and will better position your organization as we emerge from the pandemic.

Writing on the future of nonprofits in a post-COVID-19 environment, the Harvard Business Review provides helpful guidance for nonprofit leaders looking to assess their core functionality. It includes essential questions like:

• If we went away today, who would it matter to and why?
• What difference are we trying to make in our community?
• Who are our core constituents?
• What impact do they need us to have?

At the same time, nonprofits need to account for their people-centered values as they make critical decisions about equity, compensation and talent development.

Time and expense management best practices provide data-driven insights into these important questions. Specifically, nonprofit leaders might identify discrepancies between spending priorities and central mission, and they can make informed decisions about fair compensation and equity.

No. 3: Attract New Fundraising Opportunities 

Ultimately, nonprofits will need to maintain existing funding methodologies while identifying new funding opportunities. Government grants and individual donors represent opportunities to elicit new revenue streams, but nonprofits will need to take intentional steps to demonstrate value and attract investment.

For instance, many nonprofits are primarily funded by government grants, and extending or maintaining this revenue source is an obvious next step for many organizations. These grants often require comprehensive time and expense record keeping and reporting that demonstrates integrity, efficiency, and effectiveness.

Similarly, individual donors want to know that their money won’t be supporting bloated organizations or high-overhead endeavors. That’s why 70% of funders require insights into overhead costs before contributing, according to a recent survey on donor behavior.

Time and expense best practices allow nonprofits to demonstrate value and impact in several ways, including:

• Resource allocation 
• Overhead projections
• Staff and volunteer cost and equity
• Professionalism in financial literacy and intentionality 

Nonprofits can attract new fundraising opportunities by relying on their record keeping to demonstrate value, effectively promoting their efforts to available funders.

Conclusion 

Nonprofit work has never been more essential. As people grapple with the devastating effects of the global pandemic and economic recession, the goods and services provided by nonprofits are a vital lifeline.

Therefore, since economic conditions are closing many nonprofits, now is the right time to build better organizations predicated on efficiencies, effectiveness and sustainability. It’s a significant task for nonprofit leaders without an easy solution. However, time and expense best practices can improve the process by offering data-driven insights into timely decision points.

In other words, it’s one tool that nonprofit leaders can turn to while revitalizing the organizations for this important moment.