01/05/2023

Four Trends That Will Affect Nonprofits in 2023

Challenges could include labor shortages, inflation and donor hesitancy

Nonprofits will need to contend with many challenges in 2023, including labor shortages, inflation, donor hesitancy, rising costs, cyber threats, and falling endowments. Here are four trends that will impact nonprofits in 2023, and how harnessing an enterprise risk management (ERM) strategy can help improve organizations improve their resiliency.

1. Offering Better Benefits to Attract and Retain Employees

Nonprofits that expand benefits beyond core health and disability coverages to include health savings accounts, retirement plans, professional development opportunities, hybrid work environments and additional personal time off will be better positioned to address the tight labor market that will continue through 2023.

Organizations that embrace a total-rewards approach to care for their employees and personalize benefits to meet individual employee needs will help them build a workplace that attracts and retains workers. This approach, coupled with a compelling employee value proposition, also sets organizations apart from others in their search for qualified workers.

2. Reduced Funding Will Affect Financing

Regardless of whether a nonprofit relies on government funding, endowments, or donations, continued high inflation in 2023 can hurt a group’s finances. As a result, nonprofits that rely on philanthropic donations may struggle to stay within their budgets while continuing to offer the same level of services.

Government contracts are set at rates that don’t account for inflation and seldom cover an organization’s full indirect costs. Nonprofits that rely on those agreements will struggle financially as costs for transportation, operational expenses and administration increase. Shrinking government funding due to static contract amounts and budgets cuts will further affect organizations.

However, nonprofits should be able to lean on technology to operate more efficiently and create additional giving opportunities. For example, associations that leverage their donor data can identify the most involved beneficiaries and find new ways to target those donors and increase engagement with the organization.

3. Greater Demand for Services in an Unstable Market

Nonprofits saw a greater demand for services coming out of the pandemic, particularly for health and human-services organizations. And some organizations saw a surge in revenue, while others faced funding challenges, with demand for their services outpacing their finances.

With economic uncertainty and interest rate hikes, individual and corporate donors will be less likely to open their checkbooks. In addition, many organizations don’t have the financial flexibility to absorb higher costs due to inflation. 

Because of these pressures, the nonprofit sector is likely to see more consolidation in 2023. Organizations that align with complementary nonprofits will be better prepared to weather the inflationary environment, maximize their abilities and expand their pool of potential donors.

4. Implementing ERM to Remain Viable

Many nonprofits were left cash-strapped because they did not have adequate contingency plans in place to weather the recent global shutdown and its aftermath. As a result, the pandemic is prompting more organizations to adopt an ERM approach, which is a business strategy that uses methods and processes to identify and manage risks to an organization. 

Recognizing threats to organizational resiliency, such as disaster, violence and data breaches, and taking steps to mitigate those risks will be critical for longevity. Extending this ERM approach to donor communications will be necessary for groups to better convey their stories to the public and accentuate measurable outcomes that help them stand out from other organizations. Social media can be used to share testimonials from real people whose lives were changed because of the nonprofit’s work and to highlight how donors can further a nonprofit’s accomplishments. 

However, increased use of technology brings cyber risks. Implementing safeguards—such as multifactor authentication, endpoint detection and response and background screening—will be imperative. Rigorously managing contracts with third-party vendor contracts having access to data can deflect risk and protect an organization in the event of a breach. 

For nonprofits and associations starting off 2023, taking stock of your total risk and working to mitigate it with risk-management techniques at every junction will be critical. Doing so will position your organization for success, even during a potential economic downturn, and help improve overall resiliency—a gift that will last well beyond this year.

Please select this link to read the article as it originally appeared on ASAE's Center for Association Leadership.