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How Nonprofits Can Weather Inflation, Retention, Other Challenges

By Erin Steckler, SVP Business Banking and Katie Vassar, Corporate Banking 

While all businesses are facing challenges due to high interest rates, inflation and staffing shortages, nonprofits have been hit especially hard. They continue to lead the way in finding creative and innovative solutions to serve their clients and communities with shrinking resources, but today’s economic times are presenting some additional challenges. 

Issues Currently Facing Nonprofits

Inflation, Inflation, Inflation

Inflation is at a 40-year high, straining both consumers and companies. Our 2024 State of Business Report showed that 72.7% of companies are currently facing challenges due to inflation and economic uncertainty. While for-profit organizations can raise prices for their goods and services, nonprofit missions typically means that they are trying to provide more service for less money.  This equates to challenges to maintain their budget and absorb the cost increases.  Increased costs of doing business can lead to budget deficits.

Similarly, inflation has also had a negative effect on nonprofits' constituents and those they serve. With the increased costs of necessities such as housing and food, more people are relying on the services that nonprofits provide. Nonprofits are feeling the pinch from multiple directions.

Retaining Employees

The other major issue facing nonprofits is retaining and finding employees. According to our 2024 State of Business report, 62.3% of business leaders report attracting and retaining talent as a major concern, second only to inflation. Inflation has made it difficult for nonprofits to retain employees as they are being lured away by organizations that may pay higher wages and have more robust benefit packages. Additionally, due to fewer staff and higher turnover, many nonprofit employees are experiencing burnout.

Decreased Giving

Many nonprofits saw an increase in donations during the pandemic. In the years since, donations have decreased significantly. As inflation has increased and stayed, donors may have less cushion or certainty in their own finances, forcing nonprofits to make cuts or go elsewhere for additional funds.

What Nonprofits Can Do

While nonprofits are facing headwinds, there are ways to mitigate current budget shortfalls, plan ahead and make some adjustments until inflation and interest rates lower. Here are a few ways nonprofits can weather their current economic challenges.

  1. Be flexible
    Many nonprofits had to be innovative and flexible during the pandemic. Adopting that same mindset will serve nonprofits well as they seek to lower costs and increase revenue.

    For example:
    •    Are there ways to make some of your programs less costly by offering them online?
    •    Can you adopt technology to streamline services? 
    •    Are there additional grants you can apply for or foundations and for-profit companies you can partner with for opportunities or sponsorships?

  2. Lean on your board
    Any successful nonprofit will have a diverse board of directors with a variety of business and management expertise. Nonprofits would be wise to tap into their knowledge and experience to help create their budget and adapt as the unexpected occurs. They can also help make decisions on which programs may need to be adjusted, new services to offer and advise on technology that could increase efficiency.

  3. Fundraise, Fundraise, Fundraise
    Nonprofits are always fundraising, but it’s more critical as budgets have become strained. A nonprofit’s best bet is to focus on retaining existing donors rather than to focus efforts and marketing on acquiring new ones. Nonprofits should look to increase recurring gifts. See if your current donors can give more. Increasing a monthly donation from $5 to $10 can make a big difference over time. Now is the time to start planning for Giving Tuesday so you can make the most of it with a good campaign.

  4. Get creative to retain employees
    To retain and attract employees, nonprofits will have to be creative by offering additional benefits that aren’t costly. It can be hard for nonprofits to compete with large companies that offer higher salaries, however, they can often offer more boutique benefits that for-profits cannot. Try offering a flexible work environment such as a hybrid schedule where employees can work from home or on a schedule that works well with their lifestyle. Nonprofits can also look at meeting individual employee needs to retain them. Benefits that positively impact employee quality of life like flexible schedules, mental health resources and health savings accounts can make a big difference.

    Lastly, nonprofits are known for their culture and being mission-driven. Use this to your advantage as many younger employees, specifically Gen Z is drawn to mission-driven organizations that contribute positively to the community. By creating an uplifting environment that is focused on doing good, nonprofits can help attract and retain employees.

  5. Make the most of your money
    One of the biggest mistakes we see nonprofits make is leaving money on the table. Many keep deposits in a checking account for easy access, which will typically carry low or zero interest rates. Work with your banker, financial partners and board to see what options make sense for your liquidity needs and risk tolerance. There are many deposit and low-risk investment vehicles that will allow your money to gain interest and grow.

Focus on what you can control

Nonprofit leaders have always been resilient and creative problem solvers as they are masters of doing much with little. Nonprofits should focus on what they can control – their budget. The best advice is to budget conservatively and build a contingency budget. Lastly, focus on long-term stability. Given the current economic conditions, it’s probably best to keep additional expenses to a minimum until inflation cools and interest rates lower. 

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