Fast-forward four years, and nonprofit leaders continue to be challenged by the ever-increasing need for their services in the face of a still-puttering economy, alarmingly regular natural disasters, investment portfolios that struggle to earn the income necessary to fill revenue gaps and political maneuvering that threatens to send us over the “fiscal cliff.”
These are still trying times. So what can nonprofit executives and boards do in order to brace for change and position themselves for financial success in 2013?
- Evaluate reserves. I have recently had the
opportunity to observe the boards of directors at two of my clients
wrestle with their reserve policies—two vastly different organizations,
in two different sub-sectors of the nonprofit industry, one with an
enviable balance sheet and one that has historically felt that
accumulating reserves was not in the best interest of their
constituents. Both organizations were considering their reserve policy
for the same reason: several years of deficit spending through the
recession required them to re-evaluate the financial health of the
organization and consider whether their reserves were sufficient to
ensure their respective organizations stay healthy for the future.
- Evaluate investment performance and investment policies.
Many of my clients send me their internal financial statements on a
quarterly basis. It has been an interesting roller coaster ride
reviewing their financial statements over the past four years as the
market has gone up and down. Almost universally, my clients are
challenged by how to continue to fund their programs at existing levels
with investment returns being so volatile. Vigilance in monitoring
investment performance, holding investment managers accountable and
evaluating the appropriateness of your investment policy and investment
mix are critical.
- Evaluate spending policies. If you haven’t
evaluated your spending policy and your organization relies upon an
endowment to support its operating budget, now may be the time to do it.
Volatility in the markets and lower-than-expected returns have caused
boards to consider whether their current spending policies are still
reasonable in light of current economic conditions.
- Evaluate compensation practices. The Nonprofit Almanac 2012,
published by the Urban Institute Press, indicates that nonprofit
employment and employee wages have continued to increase throughout the
recession. Despite this statistic, anyone who works in the industry
knows how difficult many nonprofits and their employees had it as they
struggled with salary holds or reductions, layoffs and freezes to
benefits, such as contributions to retirement plans. Still, with
compensation being one of, if not the largest, expenditure for most
nonprofits, many of my clients are re-evaluating the size of their
workforce as well as whether compensation and benefits are appropriate
given the uncertainties in the economy.
- Identify opportunities for investment in the future. In nearly all sub-sectors of the industry, the need for nonprofit services has never been greater. As government spending on programs is threatened by the need to decrease deficit spending, opportunities will present themselves to expand programs in new and creative ways. Despite the uncertainty of the future, many nonprofits are already considering ways to make the greatest impact on our world!
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