Three Key Considerations for Nonprofits in 2023

Last year presented nonprofits with many challenges that will persist into 2023. Ongoing economic volatility, inflation-driven increases in operating costs and intense competition for talent are among key issues that continue to threaten organizations’ operational and financial wellbeing. 

As nonprofits plan for 2023, they should take stock of the challenges they face and consider strategic pivots to help them remain resilient. Following are key areas nonprofit leaders should focus on as they reflect on what is going well, what could be going better and how to further their organization’s impact in the year ahead. 

1. Economic uncertainty and the ongoing impacts of inflation

In an uncertain economic climate, it is especially important for nonprofits to bolster their financial health. Nonprofits should review their finances and consider making adjustments that will help protect them from inflation, potential related fluctuations in donor engagement and market volatility. 

Inflation

According to BDO’s annual Nonprofit Standards benchmarking survey, 92% of nonprofits surveyed are taking action to mitigate the impacts of inflation, both on their workforce and their operations. To help employees weather rising costs to consumers, 65% of organizations are increasing wages and salaries. To minimize costs to the organization, 54% of nonprofits are pursuing operational efficiencies and 52% are increasing fundraising, among other actions. 

In addition to driving up operating costs, inflation may prevent donors from contributing as much or as regularly as they typically do or would. As a result, organizations may need to rethink their donor engagement approach. Messaging should convey that every donor — and every dollar — counts. Communications to potential donors should convey urgency, have emotional appeal and help the recipient understand how their contribution makes a difference. Discover tips to engage donors at every level here.

Revenue Diversification

Amid economic uncertainty, nonprofits should seek ways to diversify revenue streams. Heavy reliance on a particular revenue source may jeopardize the organization if that source becomes unavailable or unreliable. Many organizations are already on the right track: While there is no perfect, universal revenue stream mix, the majority of survey respondents — 64% — said they plan to tap new donors as part of their effort to diversify revenue sources. Others are considering expanding program areas (38%) to increase eligibility for different types of funding and diversifying their investment portfolio (25%), among other tactics. 

Reserves

If economic conditions continue to worsen in 2023, already declining operating reserves may continue to shrink. According to BDO’s survey data, 38% of organizations had more than 12 months of operating reserves on hand in 2021. This dropped to 27% in 2022 as federal stimulus funding that once boosted liquidity was depleted and market conditions changed. 

Nonprofits should consider ways to increase reserves in the months ahead. Reducing variable costs, negotiating longer payment terms with suppliers and reassessing fixed costs such as real estate can help. So can reimagining how people, processes and technology work together. As organizations increase efficiencies, they will be able to put more funds toward reserves. 

2. Implementing the right technologies

Today, technology is central to most businesses’ and nonprofit organizations’ success. Some technologies can streamline operations, creating efficiencies and reducing the chance of human error. Other technologies provide different yet equally valuable benefits, such as the ability to help management make more informed, data-backed decisions, mitigate financial and operational risk, and effectively navigate the demands of change management. 

However, those thinking of adopting new technologies or increasing their spend need to understand what the return on investment (ROI) will be. Financial technology systems, management platforms, data analytics, automation and artificial intelligence, among other technologies, all have benefits that meet needs at different stages of an organization’s growth. There is no “one tech fits all” approach; nonprofits should make sure they are adopting the right combination of technologies to solve the most pressing challenges for their current phase of growth. That could be anything from understanding fundraising shortcomings and designing programs more effectively to implementing the right financial systems and personalizing outreach. 

Depending on organizational needs, Enterprise Resource Planning (ERP) software might be a good place to start. ERP software integrates and streamlines different data streams and processes, centralizing and distilling information to help cut costs and increase efficiency. Since ERP software is not one-size-fits-all, nonprofits should review existing processes and systems and begin to identify potential fit-for-purpose solutions from the market of potential vendors.

3. Staff retention and morale

For-profit and nonprofit entities are reckoning with heightened competition for talent. BDO’s survey data reveals that, next to budget constraints, staff morale and retention top the list of nonprofit challenges. 

Nonprofits are increasing compensation, but they know that salaries and wages are not the only factors that contribute to employee recruitment, retention and overall satisfaction. Many organizations are also adding or updating their benefits (47%) and introducing or expanding upon existing professional development pathways (46%). Nonprofit leaders recognize that motivated, engaged, passionate people need room and tools to grow. In the year ahead, organizations should consider how to nurture their employees and provide the needed support and resources to help them achieve their goals. 

Looking Ahead

As the new year unfolds, nonprofits should conduct self-assessments: What were 2022’s biggest pain points in terms of fundraising, donor retention and engagement and finances and operations? How should a 2023 strategy begin to address them? How can they support staff and balance employee and operational needs with the needs of their constituents? 

Over the last few years, nonprofits have proven time and again just how agile and resilient they are. By continuing to reflect on lessons learned and evolve alongside needs and challenges, they will be able to deliver on their missions in 2023 and long into the future.