Recession Tips for Nonprofits

A broad economic crisis can magnify a nonprofit’s pre-existing financial difficulties. The tips below are helpful for sound financial planning in all economic situations. However, in unstable times, they become even more vital. Getting through such crises requires communication, transparency, and planning. In preparation for a recession, NFF recommends assessing your nonprofit's potential financial risks, then creating a plan to respond to those risks. 

Assessing Risk: How might a recession affect business? 

Determine possible reductions, delays, or losses of revenue streams: 

• Government contracts or grants  
• Foundation and corporate giving 
• Individual donations and special events  

Conduct program economics analysis: 

• Know whether surpluses in some programs are subsidizing deficits in others
• Assess which programs affect overall financial health the most and evaluate their mission impact
• Consider whether demand for specific programs will increase or decrease in a recession

Assess current levels of liquidity using multiple measures:

• Months of expenses covered by cash
• Working capital – current assets less liabilities
• Unrestricted net assets 

Determine availability / use of any reserve funds for “rainy days.”

Make sure cash deposits are insured or distributed among banks and investments are varied.  

Addressing Risk: Plan a response to recession-related challenges 

Keep internal lines of communication open:

• Ensure that organizational decision-making processes are sufficiently agile  
• Clarify financial responsibilities of management and board
• Assess board’s ability and willingness to cover possible revenue shortfalls and/or tap into existing cash and investments   

Budget conservatively with best and worst case scenarios: 

• Assume cash will arrive late and bills must be paid sooner than expected; plan accordingly 
• Plan your response to unanticipated or worse-than-expected revenue shortfalls
• Perform cash flow projections on a regular basis

Stay in front of funders:

• Be candid about the impact of the economic climate and your specific strategy to adjust
• Emphasize your commitment to mission and the urgency of need your programs address
• Thank donors frequently, and make outreach personal
• If your organization offers services that will lessen the negative impact of a recession, approach government funders more aggressively for support

Diversify with caution:

• Consider new revenue streams but be aware of risks related to new lines of business

Reevaluate growth plans:

• Reconsider any plans for program expansion or development of new programs
• Assess current programmatic priorities in light of program economics analysis
• Communicate with board and staff about any possible cuts to program or personnel expenses 
• Consider postponing large investments in infrastructure, including facility projects 

Investigate options for renegotiating payables, debt, or leases.