A Look Ahead: Nonprofit Priorities for 2013

At this time in 2008, faced with declines in investment portfolios, volatility in the financial markets and soaring unemployment, nonprofits grappled with the dual challenges of decreased contributions and growing demand for services. In short, the nonprofit sector did not know how difficult the Great Recession would be on its resources—and industry leaders were right to be worried.

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!