I don't think there's a nonprofit executive anywhere in this country that isn't a little bit nervous about how COVID-19 is going to impact fundraising and philanthropy from a long-term perspective. I've hated the overuse of the word "unprecedented" since the pandemic outbreak, but it really is the best word to describe our current circumstances.
To what can we compare this?
Having spent the better part of the last two decades in nonprofit fundraising, I've never really experienced anything to which I can compare this pandemic or make confident judgments on the future of philanthropy. My most relevant experience has been the recession in 2008. After the stock market
crash, many foundations felt significant financial losses as most derived their funds from stocks. Many pulled back on making grant awards altogether or awarded much smaller grants to fewer nonprofits. It also changed the way many foundations made gifts, with much fewer unrestricted or general operating grants and a new focus on programmatic awards.
Since things started to improve a bit, foundations seem to have realized how their focus on programmatic funds may have handcuffed many nonprofit organizations. Like businesses, nonprofits need operational funds to exist. In the last few years, we've seen a shift back to include operating grants more often in grant awards or foundations allowing a percentage of programmatic awards to be used for operating costs.
So how does the stock market impact grant making?
Nobody knows with confidence what the market is going to do in normal years. 2020 has proven to be anything but normal. While some are saying that we are on the brink of a market crash, we've seen all-time highs in the midst of increasing COVID-19 infection rates across the country. Volatility is a normal part of investing and those that manage foundation portfolios understand that and plan accordingly, keeping in mind the ultimate mission of the grant-maker and the needs of the individuals served by the nonprofits that benefit from its grants.
Foundations typically plan their awards in three-to-five-year cycles based on the earnings of their stock holdings, meaning they may have known what they are going to award in 2020 since 2015. So if we see a downturn in the stock market now, nonprofits may not see the effects of those lesser earnings until 2023 or 2025. It explains why we haven't seen less funds awarded, just many of those awards redirected to COVID-19 related causes.
What can nonprofits do now?
Let's say the stock market takes a turn for the worse and we see a financial impact to foundations much like we saw in 2008. Now is the time for nonprofits to start planning.
Cultivate relationships with your current foundation partners that can weather the storm Now is the time to stay in touch with your current foundation partners. Make them aware of your continued or increasing need for their support. Do they anticipate a shift in funding priorities or changes in their awarding practices? Ask if they're aware of other funding opportunities you may be able to explore. Have conversations about the future, of both your nonprofit and their foundation. Just like individual donors, make it a point to stay in touch with them on a regular basis. When/if things change financially for them, you want them to easily recall why it is important for them to continue including your nonprofit in their grant awards.
Engage your individual donors in your nonprofit's programs now so they are committed to your cause Individual donors, particularly major donors, will feel the impact of a stock market downturn before foundations. Have conversations with these donors about the diverse ways they can support your organization. Connect them with your programs now. Clearly demonstrate the impact of their support. When/if push-comes-to-shove, they're probably going to be asked to divide a smaller donation amount between more nonprofits. Building quality relationships now will increase your nonprofit's chances of being near the top of the list when it comes time to make charitable contributions.
Build programs that can be responsive to the changing needs of clients and funding interests of foundations Let me clarify here... it's never a good idea to design a program simply to submit a request to a specific grant funder. Let's get that out there. But, there is value in considering the fundability of your programs. Are your current programs no longer addressing the most pressing needs of your clients? Have those needs changed with the shifts in our culture, politics, healthcare, etc.? Is your request going to be competitive with an organization that is providing direct services in response to COVID-19?
Create a Rainy Day Fund Start planning now for an emergency fund. If possible, set aside 10-20% of all unrestricted donations in an account line that can be carried over from year to year as operating reserves. Communicate with your donors that you are planning ahead and ask them to consider adding $5, $10, $100 to their typical annual contribution for this fund. If things get tighter for foundations over the next 3-5 years and they shift to programmatic grants only, your nonprofit won't be strapped for operating cash and you can focus your requests on your programs that meet their funding interests.
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