Facing a series of challenges in 2025, many nonprofits have turned to strategy. Federal funding cuts have captured the headlines, but changes to federal agencies are just one of several factors that have compounded to create a moment of consequential sector change and a return, for many nonprofit leaders, to first principles. Notable shifts include:
- Years of decline in charitable giving: According to Giving USA, while 2021 was a record setting year for charitable giving, giving declined by 3.4% in 2022 (10.5%, when adjusted for inflation). In 2023, organizations saw an approximately 1.9% increase in charitable giving – but that became a 2.1% decline when adjusted for inflation.
- Inflation and cost of living: The cumulative rate of inflation is about 23.6% since February 2020. Inflation puts pressure on the budgets of individual donors, making it more challenging for them to give. In addition, individuals make up the bulk of charitable giving (67% in 2023) and may be hit first and worst by inflation and economic disruption, compared to corporations and foundations. Nonprofits are also directly affected by inflation due to increased costs of goods and resources.
- Significant changes in federal funding priorities: Cuts to federal grants have greatly impacted nonprofits. As roughly 30% of nonprofits rely on government funding, these cuts have forced many organizations to reduce headcount and eliminate programs.
Together, these factors have led nonprofit leaders and their boards to revisit some of the most basic assumptions about the sustainability of their organizations and the viability of business models they’ve depended on.
What will their organization’s future look like? Circumstances have conspired to push leaders to consider new options: Strategic pivots, earned revenue opportunities, new and enhanced collaborations, public-private partnerships, consolidations and even mergers. Moments of disruption like this present engaged leaders with both existential challenges and structural opportunities to approach orthodoxy with a fresh perspective and make bold choices to advance their missions and serve their constituents for the long term:
There are several opportunities for nonprofits to leverage to reinforce resilience:
- Organizational Strategy: The organizations that thrive in times of change have clearly defined organizational strategies that support change, growth,and resilience. Building a strong strategy requires a firm understanding of which programs are best serving the organization’s mission and whether a shift in mission scope is necessary. An effective strategy will outline how to deepen relationships with donors and funders and whether to explore new sources of revenue. However, given how quickly economic and political factors can change, it is important for organizations to remain agile in their strategy execution. This means creating strategies across shorter time horizons (1-3 years instead of 5) and aligning the annual business plan and budget to the strategy.
- Strategic Partnerships and Mergers and Acquisitions: While mergers and acquisitions are more often discussed in the private sector, nonprofits may have abundant opportunities to engage in strategic combinations due to pre-existing partnerships and their openness to collaboration. Nonprofits regularly work with other like-minded organizations to serve their communities. These often take the form of informal partnerships and coalitions, or even strategic partnerships. While partnerships and coalitions can yield more effective results by aligning efforts and resources toward a shared mission, strategic combinations can take alignment a step further. Mergers allow organizations to take advantage of economies of scale, diversify revenue, and streamline overhead.
- Revisiting Nonprofit Operating Models: A nonprofit’s operating model defines how the organization is run day-to-day. This means defining the structure, roles, and org chart that enables the organization to be efficient and effective. It also requires developing a governance framework and optimizing technology to support new organizational structures. As artificial intelligence (AI) advances, there are new use cases for AI to streamline processes and reduce manual tasks. When revisiting an operating model, it is important to reassess if your organization is structured appropriately to meet your mission.
- Legal Entity Restructuring: Nonprofits often default to a 501 (C)(3) structure. But as organizations grow and evolve their partnerships, funder and donor relationships, and organizational strategies, they may benefit from exploring alternative legal structures. These could include 501(C)(4), 501 (C)(6), LLCs, B-Corps and subsidiary relationships with for-profits. Organizations should consider how their legal entity structure aligns with their programs and goals.
During changing times, BDO can work with your organization to help chart your strategic path forward. Whether your organization could benefit from an organizational strategy refresh, a merger or acquisition, a rearticulation of your operating model, benchmarking operational functions, or a legal entity restructuring, we have the deep experience to strengthen your organization. Nonprofits are driven by passionate, resilient people. The collaborative nature of the sector facilitates peer organizations to work together to find solutions in challenging times. With the right guidance, organizations can deliver transformative, long-lasting impact both now and in the years to come – no matter the obstacles ahead.
Learn how we can work with your organization to build resilience. Contact us today.