Why are we writing about a recession?
There has been much talk lately of an impending recession – as a backlash to the Covid crisis and then the Fed raising interest rates. With gas prices at an all time high, pundits are predicting we may be headed for another recession. So here are some strategies used by our clients to analyze and prepare for a recession.
Sounds simple, right? But too often, we don’t want to spend too much energy looking back. Yet we all know history is the best predictor of future actions right? One of our clients decided to through their financial records to pull together a trend analysis of what happened during the last recession. Their analysis was structured as follows:
Start before the beginning
They started a year before the 2008 recession just to see if that added any context, and to serve as a baseline of their starting place heading into the recession.
Map beyond the end
While there may not be many fluctuations year to year, they actually saw that their donations took longer than the general market to rebound once the recession ended. We all know that foundations tend to respond based on what happened to their investments the year before this one, so expect that their risk aversion will continue at least a year beyond any recession.
Spot themes that can inform strategy
This client found that while they did not lose as much income as they feared, it actually shifted away from institutional and individual giving and more towards government funding. In the end they were able to preserve most of their income, but it changed the structure of what was being supported, which changed their program offerings.
Convene a panel of supporters
One of our clients has a program that is hard to fund at 100% of where it should be. They have struggled with this for some time. So they are convening a panel of supporters – foundations that fund the program, as well as researchers and other thought leaders with wisdom to share – to help them think through how best to restructure the program going forward.
Map your sustainability
We often use a matrix tool with our client, based on the book Sustainability Mindset. This tool allows you to see all of your major activities together in light of their profitability and their impact. The go to place for board members in a struggling organization is to cut expenses to make program more profitable, without considering how that might affect the organization’s overall impact. This tool helps you consider both axes, and gives you strategic implications according to where your program lines land. It is a very smart way to keep on top of the holistic view of your nonprofit.
Financial Scenario Planning
We have a client, who has a lease on space that is used to run their programs that is up for renegotiation soon. They are interested in doing financial scenario planning to run projections of what happens if their rent is increased, what happens if they move, etc. This kind of scenario planning would also be an excellent tool to use in the case of a looming recession. It can allow you to test different scenarios of what happens if X funding line is cut, or if we experience a Y% decrease in funding. That way you can head into a recession having calmly considered your options instead of in panic mode like so many of us do.
Some of our clients are good about doing regular risk analyses. Now would be a great time to build that skill if you’ve never done this. You can use a tool like the CREFT which is put out by Community Resource Exchange, or you can plot your risk in different areas pertaining to your organization on two axes: likelihood and severity. This would be an important tool to use if we are headed towards a recession so you can take steps right away to mitigate risks that are present for your organization.
As always, if any of these options appeal to you, please let us know – we’d be happy to help serve as your thought partners and analysts in this journey. Just contact us!