Inflation has rippling effects on nonprofit organizations, donors, and funders alike. With inflation at a 40-year high due to the pandemic, federal stimulus programs, and other factors, nonprofit leaders and board members have to think strategically about how to navigate increases in inflation.
If you are unfamiliar with inflation, inflation is a term used to describe a general progressive increase in the prices of goods and services.
In everyday nonprofit leader language this means:
Your same costs will cost you more today than they did a year ago. This is called a decrease in purchasing power.
Individual donors and businesses are being squeezed too by price increases. They may consider cutting back their giving to improve their own sustainability.
Foundations with much of their money tied to endowments need to earn more in investments to make up for inflation. They may cut back too to save the endowment.
One key thing to understand about inflation is that pricing related to inflation is "sticky". This means that even with changes in aggregate pricing and economic conditions, prices will still remain high for a while. It will take time before any real changes in prices are seen. Like Cardi B says, when it's up (inflation that is), then it's stuck (prices).
Another point for nonprofit leaders to know is in this climate, everything is up. Prices are up and so are your costs to borrow (interest rates on loans). Salaries- up. Food, materials, transportation, GAS, - up, up, up. Even the demand for your services is up. Why? Per The Chronicle of Philanthropy article "Nonprofits and Foundations Need to Be Prepared for the Effects of Inflation on Services, Operations, and Endowments", the government can't often cut protected programs like Medicare and Social Security so discretionary programs (which are optionally funded) often include transportation and education (think Head Start). These cuts create an opportunity for nonprofits to fill in the gap to deliver programming that used to be provided by the government.
So how do nonprofits navigate this myriad of doing more work, paying increased admin and programming expenses, and meeting payroll with potentially less money coming in from donors and funders? (What a dilemma!)
The article provides the following solutions for nonprofit leaders to consider:
"Nonprofit leaders can shift their resources to reduce damage from inflation, such as by putting more money into interest-bearing accounts or deferring actions that would require them to take out loans. They may also need to make difficult operating decisions, such as replacing staff with technology, to lower costs."
These are definitely options to consider in the short term, but the article also suggests more thought is needed for long-term solutions.
What are your thoughts on things nonprofit leaders can do in the short-term and long-term to help navigate the impacts of inflation?
- Shavonn
Source: https://www.philanthropy.com/article/nonprofits-and-foundations-need-to-be-prepared-for-the-effects-of-inflation-on-services-operations-and-endowments
Shavonn Richardson, MBA, GPC is Founder and CEO of Think and Ink Grant Consulting™. She is a grant professional, an active speaker, and serves on the Board of Directors for the Grant Professionals Association.
Shavonn earned a BBA from Howard University and an MBA from Emory University. She earned the GPC (Grant Professional Certified) credential from the Grant Professionals Certification Institute in 2020.