The economy seems to be changing daily. Your nonprofit can make the most of your environment when you keep an eye on timely accounting trends like these.
The financial world has been on a rollercoaster the last couple of years. At the onset of the pandemic, we experienced a sharp downturn in many industries followed by shortages and restrictions. Now that COVID cases are easing, we’re still not out of the tangled financial weeds.
Now, we’re facing the worst inflation we’ve seen in years, increased prices, and gas hikes all resulting in tighter budgets. But what does this mean for nonprofits?
It means several things. First, it means that nonprofits need to carefully consider their financial positions and take action that will help get them through this difficult time. Good financial management practices are a must to ensure money is allocated correctly and will be sustainable for the long term.
In this guide, we’ll cover a few rising trends in the nonprofit financial sector and how your organization can use them for success moving forward. We’ll discuss the following three trends:
- Greater emphasis on sustainability
- Increased importance on non-monetary donations
- Investing for nonprofit organizations
While financial turbulence is enough to keep anyone, especially nonprofit professionals, on edge, taking action to react to these important changes will help you get through challenges and keep moving forward with your mission.
1. Greater emphasis on sustainability
Acquiring new donors is expensive. The cost of acquiring a new donor can be 50% to 100% more than the amount they donated. Now, add in the tightened budgets that individuals are encountering and it may become even more difficult to collect donations through new donors.
Sustainable fundraising comes from the supporters who contribute to your cause time and time again. Therefore, focus on retention.
According to NonprofitEasy, the average donor retention rate is only around 40%. However, if you’re able to increase this by just 10%, it could result in thousands of more dollars for your nonprofit. Consider this:
Your nonprofit has 100 donors who all give $100 per year. If you retain 40% of them on an annual basis, this is what the next five years will look like:
- Year 1: $10,000
- Year 2: $4,000
- Year 3: $1,600
- Year 4: $640
- Year 5: $256
- Total: $16,496
Meanwhile, if your retention rate is 50%, you’ll see a different story:
- Year 1: $10,000
- Year 2: $5,000
- Year 3: $2,500
- Year 4: $1,250
- Year 5: $625
- Total: $19,375
The nonprofit with a higher retention rate raises $2,879 more than the one with a lower retention rate. Further, keep in mind that this example is both small-scale and oversimplified. When donors give to a nonprofit year after year, they tend to give more over time. And, when a nonprofit retains donors, it also decreases acquisition costs, increasing the return on investment. When applied to a real-world nonprofit, the second number would be much higher.
Focusing on retention is a key nonprofit fundraising strategy at any time, but especially during a tough economy. Even if they have trouble donating right now, offer supporters the option of decreasing their donation amount or giving back in another way. This helps maintain a high lifetime value rather than allowing these important donors to lapse. Then, when your organization does acquire new supporters, you’ll already have retention strategies in place, allowing you to keep more of those supporters over time as well.
2. Increased importance of non-monetary donations
When you consider the federal and community grants organizations receive regularly, much of a nonprofit’s revenue is fixed. The most flexibility for growth comes from the individual contributions made by supporters in the community. When individuals struggle to give, nonprofits also struggle to cover their expenses that are not covered by grant funding.
However, there are other ways supporters can give back to your organization without digging deeper into their pockets. Two key ways supporters can give back are through in-kind donations and volunteer hours.
In-Kind Donations
Request the in-kind donations that will be most helpful for your mission and ask supporters if they can contribute these to your cause. These gifts can come in two main forms:
- Goods, or physical items that supporters can bring and leave with your organization. For instance, a supporter may give anything from a car to a pair of pants that are fitting them a little too tightly nowadays.
- Services, or time conducting activities that your organization needs to perform free of cost. A lawyer may offer their services free of charge or perhaps a graphic designer will help you with marketing materials.
Either way, these contributions need to be assigned a value so your organization can record them in your accounting system. Jitasa’s in-kind donation guide explains that it’s pretty simple to look up the value of contributed goods online. But services can be trickier as you need to discuss the hourly rate with the donor to see how much their time was worth.
Volunteer Hours
Nonprofits have been running into the issue of being short-staffed lately. This is because inflation drives up the need for nonprofit-run services like food banks, but many fixed revenue streams leave nonprofits unable to expand their teams.
Volunteer time can be a great supplement for the hours that nonprofits would otherwise have staff fill. Plus, every hour of volunteer time is worth about $26 that you would’ve otherwise had to pay staff. Don’t overwork your employees and ask for volunteers instead.
3. Investing for nonprofit organizations
Another accounting trend is nonprofits investing funds. There are several opportunities for nonprofits to take advantage of investments, from the investments donors make and contribute to the organization to investing their own reserve funds in the stock market. Examples include endowments, some donor-advised funds, stock and bond purchases, and even some donations of stocks to nonprofits.
Nonprofits also have the ability to make investments for themselves. Generally, nonprofit investing serves to accomplish three distinct goals:
- Building assets
- Saving long-term
- Soliciting large donations (like endowments)
As some types of investments require your organization to restrict certain funds, or at least make them less liquid, your nonprofit should discuss the best course forward with your accountant.
Keep an eye on the market before you determine if it’s the right time to invest. As inflation and national economic challenges have made it fairly volatile, be sure to talk to an expert before investing your hard-earned funds.
Nonprofit finance can seem like a tricky subject as organizations face different challenges than those in the for-profit sector. However, with a thorough understanding of your finances, accurate records, and an overview of the emerging trends, you’ll be better prepared to endure economic turbulence.