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4 Ways Nonprofits can Weather Financial Risks

Despite their charitable outlook, nonprofits are just as challenging to run as their for-profit counterparts.

Posted: 16th January 2023 by
Finance Monthly
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As a worldwide economic recession looms and purses tighten, nonprofits are set to run into strong headwinds. HUB's report into the nonprofit sector lists a range of economic challenges nonprofits will face in 2023.

While you can pursue one of many grants for nonprofits, financial resiliency boils down to a mixture of planning, preparation, and luck. You can't control that final factor, but planning and preparation are well within your grasp. 

As the nonprofit industry rolls into 2023, here are the 4 ways nonprofits can weather financial risks and challenges.

Shift the organizational mindset

Many nonprofit management teams forget they're running a serious enterprise due to the lack of focus on the bottom line. While the lack of focus on profit does change business economics quite a lot, you must run your organization like an enterprise.

An enterprise-like focus will help you zero in on inefficiencies and financial leaks quickly. Building an enterprise-like risk management culture will also help your employees align around a common goal. There are many benefits to adopting an enterprise-like view of operations.

For instance, you should conduct regular cash flow analysis to figure out your working capital position. How much money do you have to run operations and fund your causes? How much do you need to raise? What percentage of your cash reserves should go toward marketing and sales?

Some nonprofit teams shy away from this business-like approach to managing finances. However, there is no other way to run your nonprofit efficiently. Build reporting mechanisms and make financial resilience a cultural point.

If you meet with inertia from your employees, remind them that the more resilient your organization is, the easier it is to fund your causes. After all, a nonprofit constantly battling a crisis is of no use to those in need.

Examine employee benefits

Nonprofit employees are driven by much more than money. However, they cannot devote themselves to worthy causes unless their needs are being met. Nonprofit salaries might skew towards the lower end of the scale, but this does not mean you can set and forget compensation.

More than ever, it's time for nonprofits to review their compensation structure and align with the higher cost of living the world is currently experiencing. Nonprofits always face a tough labor market, with few talented employees willing to devote themselves to a cause full-time. 

To attract highly-qualified talent, you must tailor compensation packages to the individual. This sounds like a tough task, but it's one worth pursuing. The higher your employees' satisfaction levels are, the easier it is to retain them and reduce hiring costs.

HUB's report on the nonprofit sector's 2023 outlook revealed a few worrying trends in nonprofit employment. The COVID-19 pandemic pushed many events online, leaving volunteers and employees with a sense of disconnect from their causes. Many individuals also report having less time to contribute.

As a result, nonprofits must examine their volunteer and employee training programs to bring a sense of belonging and achievement back to their workforces.

Prioritize cybersecurity

Mention cybersecurity to most nonprofits, and you'll be met with an eye roll. After all, if budgets are tight, how can a nonprofit afford expensive cybersecurity? The truth is cybersecurity is no longer inaccessibly expensive. Also, nonprofits are subject to the same data privacy and security laws as other organizations and cannot make excuses for lapses.

Cybersecurity seems intimidating, but there are a few easy steps you can take to ensure your security insurance premiums dip. For starters, enforce multi-factor authentication (MFA) in all your systems. Next, install basic endpoint protection software.

Endpoints refer to the extremities of your digital network. Endpoint detection software, also called EDR, protects these boundaries from unauthorized access. Invest in training your employees in phishing handling techniques too, since email inboxes remain one of the most vulnerable portions of an organization's security posture.

As ransomware and other attack methods grow in popularity with malicious actors, nonprofits must gear up to protect themselves. Nothing damages a brand faster than a data breach these days. Cybersecurity investment will prove increasingly critical moving forward.

Embrace flexibility

Many nonprofits struggle to retain employees and attract donors due to a lack of flexibility. For instance, some employees might wish to work remotely, but a lack of physical presence is a no-go for some nonprofits. Similarly, many nonprofits do not offer enough options for donors to contribute, leaving them frustrated.

To succeed in 2023 and beyond, nonprofits must shed tired old ways of working and embrace a flexible structure. Like cybersecurity, you might balk at the thought of changing your work processes. However, the investment will be worthwhile.

When looking at employee work methods, insisting on physical presence makes no sense unless the job requires one-to-one contact with the communities you serve. For instance, why does your accountant have to be present on the premises? Similarly, a marketer does not have to be present on the premises all the time. You'll attract more talent from diverse locations and boost your nonprofit's performance.

Embracing technology is the key to building flexibility. Whether HR software or CRM platforms, embrace tech and automate clerical tasks. You'll attract more money and talent by delivering such flexibility, boosting your nonprofit's financial standing.

It's time to change

Nonprofits have long been mired in outdated business practices. As the tough economic conditions of 2023 roll into view, it's high time you shifted away from legacy practices and built something resilient. The tips in this article will help you begin in the right direction and sustain positive momentum.

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