Episode 45 | How to Recession Proof Your Nonprofit

Budget season is one of the most critical times of the year for nonprofit leaders. The decisions made now will determine the sustainability, impact, and financial health of an organization for the next 12 months and beyond. Yet, many leaders approach budget planning with the same mindset year after year, even when economic conditions, donor behaviors, and staffing realities have shifted.

As a nonprofit CEO and change management consultant, I’ve witnessed firsthand how failing to adapt can cost leaders their careers. I’ve also seen how a proactive, strategic approach to budgeting can position organizations for long-term success.

If you want to lead with wisdom in this season, there are three economic realities you must face:

1. We’re likely headed into a recession.

   • Economic indicators suggest that financial uncertainty will continue. Many organizations may experience funding cuts, increased expenses, and shifts in donor priorities.

   • Rather than hoping for the best, nonprofit leaders should plan for different financial scenarios to ensure sustainability.

     
     

2. Donors are not giving like they used to.

   • The Fundraising Effectiveness Project reports that new donors have decreased by 10% between 2012 and 2022, and even donors who gave in 2021 reduced their gifts by 26% in 2022.

   • This means nonprofits cannot rely on past donor behavior to predict future giving. Organizations must strengthen donor relationships, focus on retention, and explore new revenue streams.

   
   

3. Experienced development professionals are harder to find and retain.

   • The average tenure of a development professional is now just 18 months, making it challenging to build long-term fundraising momentum.

   • If nonprofits fail to invest in their fundraising teams and strategies, they risk financial instability.

     
     

To navigate these challenges successfully, nonprofit CEOs must rethink their budget planning approach. Here are three key strategies to implement this year:

1. Conduct a Return on Investment (ROI) Analysis

One of the biggest mistakes nonprofits make is continuing programs, events, or services simply because they’ve always done them. Every initiative must be evaluated to determine whether it is worth the investment.

• Assess every major program, event, or service. Set a threshold—such as $10,000, $25,000, or $50,000 in annual cost—and require an ROI analysis for anything above that amount.

• Ask tough questions. If a program or event requires significant resources but has a low return—either financially or in terms of impact—it may be time to phase it out or redesign it.

  
  

2. Develop a High-Probability Revenue Strategy

Many nonprofits set unrealistic revenue goals based on what they hope to raise, rather than what is highly probable based on historical giving. This approach can lead to budget shortfalls and financial stress.

• Use historical data to guide revenue projections. Instead of setting a fundraising goal based on need, build your budget around what has actually been raised in previous years and what key funders are likely to commit.

• Engage in proactive donor conversations. Reach out to major donors and foundation partners before finalizing the budget to understand their giving capacity for the upcoming year. Ask:

  • Is there any reason your giving to our organization might change this year?

  • Do you anticipate increasing or decreasing your funding levels?

  • Are there any new grant opportunities or funding priorities we should be aware of?

• Separate base revenue from stretch goals.

  • Base revenue should be the amount you can confidently raise based on historical giving and donor commitments.

  • Stretch goals should be aspirational fundraising targets that exceed the base budget but are not essential for maintaining operations.

    
    

By using this approach, nonprofit leaders create financial stability while also allowing for growth opportunities without putting the organization at risk.

3. Add a Revenue-Generating Component

To reduce dependence on donor funding, nonprofits should consider adding sustainable revenue streams that generate predictable income.

• Examples of revenue-generating activities include:

  • Hosting paid industry training or conferences

  • Implementing a sliding-scale fee for services

  • Selling branded merchandise or consignment items

  • Renting out event or meeting space

  • Offering specialized consulting or coaching services

• Integrate earned income with fundraising. When securing major gifts or multi-year grants, consider structuring them in a way that includes a revenue-generating element to ensure sustainability beyond the initial funding period.

Nonprofit leaders who implement earned income strategies are better positioned to weather economic downturns and maintain services even when donor giving fluctuates.

Final Thoughts: Lead With Intentionality

Budget planning is one of the most strategic responsibilities of a nonprofit CEO. Yet, many leaders delegate the process to their CFOs or controllers without truly engaging in the details.

This year, I encourage you to:

• Be hands-on in the budgeting process from the beginning.

• Ask critical questions and challenge assumptions.

• Refuse to approve anything you don’t fully understand.

At the end of the year, when you’ve successfully met or surpassed your budget goals, you’ll be glad you took an active role.