Speculation about when the next recession will hit has become a cottage industry in the media. No one can say for sure when the next financial downturn will come, but veterans of the nonprofit sphere know that when it comes, it will undoubtedly make fundraising harder and increase other types of risk faced by organizations. Nonprofits can take steps now to prepare for leaner times.
When fundraising gets harder and income streams dry up, a nonprofit needs to be ready to adjust its business practices to account for its new reality. That can mean refocusing efforts toward narrower goals, or putting off hiring new staff. From a governance standpoint, anticipating these types of changes is often a matter of financial planning—accumulating a sound cash reserve, avoiding fixed costs, exploring creative financing solutions if they’re available.
Another important area to consider is the way the nonprofit manages risk through its policies and procedures. During leaner economic times, litigation is one area of the economy that always seems to stay busy. The scope of risks facing a nonprofit will vary from organization to organization, depending on factors like the size of its staff, the community it serves, and its financial scale. But most organizations can use policies to control for risks like these:
- Financial mismanagement.
- Employment mistakes, like failing to appropriately screen employees and volunteers.
- Contract mismanagement, including failing to enforce legal and financial review standards.
- Poor recordkeeping, making it difficult to quickly assess current obligations and exposures.
- Inadequate oversight over donor communications.
In a downturn, when resources are thin and managers face especially stressful times, fixing problems like these can be more difficult. Worse, the issues created by not addressing them sooner often linger and are more difficult to address amidst a broader crisis. Adopting a clear set of standards to guide the work of the board, managers, employees and volunteers can make a big difference.
The Church Law Center of California provides governance counsel to nonprofits both in the religious and secular realms. We can help your organization examine its policies and practices to identify places where improvements could protect against legal risk. To schedule an appointment call us at (949) 892-1221 or reach us through our contact page.
