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Inflation has recently soared to the highest levels the United States has seen in about four decades. In June 2022, the U.S. Bureau of Labor Statistics reported that prices had risen 8.6 percent over the previous 12 months. Consumers, businesses and nonprofits across the country are feeling the effects of high prices. Inflation can have a serious impact on charitable organizations and other nonprofits, affecting both their revenue and their expenses. While opinions differ on whether inflation will slow or stop any time soon, nonprofits can take steps to save money right away. This post offers an overview of the effect of inflation on nonprofit organizations and a few helpful tips on what they can do minimize the impact.

How Is Inflation Affecting Not-For-Profit Organizations?

Many nonprofits operate on tight budgets. The amount of money they bring in may be very close to the amount they spend on their programs and their administrative costs.

During a period of inflation, the most well-known effect is that consumer prices rise. Nonprofits and consumers alike have to spend more on the same goods and services they bought before prices began to rise. For many consumers, they must deal with rising prices while wages remain stagnant.

When everyday goods are more expensive, people have to make tough choices about how and when to spend their money. Donations to charitable organizations often tend to be the first revenue source for nonprofits to slow during inflationary times. This is due to households cutting items from their monthly budgets or simply holding on to their money due to uncertainty in the markets.

Nonprofits, therefore, take in less money, which can be problematic due to the fact that most receive a significant part of their revenue from donations, along with grants and other sources. At the same time, they have to spend more money in order to continue supporting their programs. The situation can quickly become unsustainable.

3 Ways Not-For-Profits Can Battle Rising Inflation

If a nonprofit wants to survive a period of inflation, it cannot wait and hope for the best. It must take action to protect its revenue and save where costs can be cut.

1. Donor Retention

Many options are available to help nonprofits retain donors and bring in new ones. In some cases, it will require spending more money. As the saying goes, you have to spend money to make money. Organizations may need to examine other areas of spending and give higher priority to donor retention.

Keeping donors tends to cost less than attracting donors, and donors who feel engaged with an organization’s mission tend to keep donating. It is often worth investing in donor engagement as a way to maintain long-term donor loyalty.

Data is also critically important during inflation. Keeping track of metrics and donor retention rates can let organizations know how their efforts are working in almost real-time.

2. Employee Retention

A nonprofit’s workforce is often its greatest asset. Preventing employee turnover is essential to saving money. Employees develop institutional knowledge that they can use to make the organization run more efficiently, but only when those employees feel like valued members of a team. A high turnover rate suppresses morale and lowers productivity. Keeping good employees around boosts both efficiency and morale. Additionally, training replacements can be expensive and time consuming.

3. Digital Efficiency

Many traditional business expenses are no longer necessary in the digital age. Office leases are one of the biggest administrative expenses for many organizations. Not every nonprofit can go entirely virtual, but the COVID-19 pandemic demonstrated that many jobs can be done remotely, either full-time or a few days a week. With fewer people in the office, an organization may not need as much physical space.

Paper is also increasingly unnecessary. Paper records create waste and take up storage space. Many digital and cloud based options are available that allow nonprofits to operate almost entirely without the need for paper. This is both cost and time effective.

Finally, digital technologies offer ways to automate various tasks, or at least take them online. Meetings can take place with videoconferencing services like Zoom or Microsoft Teams, and employees working in teams can use software that enables them to work collaboratively on their projects. Even fundraising efforts can be handled digitally with the right tools. Again, this is both cost and time effective.

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If you have any questions or would like additional information about anything mentioned, please comment below or email us at askus@lgt-cpa.com.