Financial Resilience: Strategies for Nonprofit Downsizing and Renewal
Perhaps no decision is more disheartening to nonprofit organizations than the realization that they may need to restructure or downsize to stay operational. Unfortunately, volatile economic and political landscapes have made this a realistic eventuality for many organizations. Staying ahead of the changing tide is paramount for leaders who are preparing to navigate these newer waters.
The Growing Reality of Nonprofit Downsizing
Nonprofit organizations across the United States are facing significant financial pressures that are leading to restructuring and downsizing. For example, Catholic Charities in San Antonio laid off 200 employees—half of its staff—due to substantial federal funding cuts, jeopardizing refugee housing and other essential services. Similarly, the Human Rights Campaign reduced its workforce by 20%, citing unsustainable operating costs despite recent revenue surpluses.
These examples underscore a broader trend: nonprofits are grappling with decreased funding, increased demand for services, and a challenging labor market. One recent study highlighted a 28% decline in volunteerism over the past decade, further straining nonprofit resources.
These aren’t ideal circumstances—we know. But they highlight just how crucial strategic planning is in these scenarios. At Edgility, we encourage organizations to conduct a thorough assessment of funding, expenses, and talent to facilitate a smoother transition, whatever your situation. Here’s how we recommend approaching the process of organizational restructuring or downsizing effectively.
Conduct a Funding Risk Assessment
Start with a clear understanding of your financial risk. Nonprofits should avoid over-reliance on a single donor or funding source, as this leaves you vulnerable to sudden shifts. A diverse funding portfolio helps smooth income fluctuations and allows your organization to continue operations even if one stream experiences a downturn. Exploring different funding sources can also open doors to new donor demographics and increase awareness of your mission.
Key Questions to Evaluate Your Funding Risk
Use the following metrics to evaluate where you stand:
Diversity of Funders
How dependent are you on a limited number of income sources?
- High Risk: More than 80% of revenue comes from 20% of donors
- Medium Risk: 70–80% of revenue comes from 20% of donors
- Low Risk: Less than 70% of revenue comes from 20% of donors
Diversity of Funding Channels
How reliant are you on a single revenue channel (e.g., government grants, foundation grants, individual donations, corporate sponsorships)?
- High Risk: Over 75% from one channel
- Medium Risk: 41–75% from one channel
- Low Risk: No more than 40% from any one channel
Restrictions on Funds
How flexible is your funding?
- High Risk: Over 75% of funds are restricted
- Medium Risk: 41–75% are restricted
- Low Risk: Less than 40% are restricted
Strength of Funders’ Relationships
How stable are your relationships with funders?
- High Risk: Funders are revisiting priorities AND primary relationships are in flux
- Medium Risk: Either funders are revisiting priorities OR relationships are in flux
- Low Risk: Funders continue to prioritize your mission AND you have a strong relationship with key contacts
Benchmark Dependency
Are your grants dependent on hard-to-meet benchmarks?
- High Risk: Funding is contingent on benchmarks not previously met
- Medium Risk: Contingent on benchmarks you’ve consistently met
- Low Risk: Not contingent on benchmarks
Your Risk Level
Tally up your points. Give yourself two points for every A, one point for every B, and no points for every C. Your Overall Risk Category is:
- High if you scored 9 or above
- Medium if you scored between 5 and 8
- Low if you scored under 5
By analyzing this data, nonprofits can categorize funding sources into confidence levels: those that are “low risk” can be included in your “worst case scenario,” while “medium” and “high risk” ratings can help develop “most likely” or “best case” scenarios.
Build a Financial Scenario Planning Model
Once you’ve established funding confidence levels for your nonprofit, create a financial scenario planning model. This chart gives a starting point.
Risk Level | Best Case Scenario | Most Likely Scenario | Worst Case Scenario |
High | Assume slight loss in funding | Assume moderate loss in funding | Assume significant loss in funding |
Medium | Assume no loss in funding | Assume slight loss in funding | Assume moderate loss in funding |
Low | Assume slight loss in funding | Assume no loss in funding | N/A |
Ultimately, you aim to have ‘contingencies for your contingencies’ and know how to pivot for each potential scenario.
Conduct an Industry Risk Assessment
Now you want to look out to the broader landscape and evaluate risk across the sector.
- Analyze investment trends in your sector to determine if it is growing, stable, or shrinking.
- Review the population you serve to ascertain if it is expanding or contracting.
- Identify relevant industry trends that may affect funding dynamics.
This context will inform the conservativeness of your scenario planning assumptions.
Review and “Right-Size” Expenses
Just like individuals and families often have different budgets for different economic climates, organizations should too. Personal finance gurus often talk about having a noodle or “ramen” budget in reference to the frugal favorite that many people enjoy. Nonprofits should use the financial planning model above to determine a best-case budget, a most-likely budget, and a bare-bones or “noodle” budget. Here are a couple areas we recommend focusing on.
General and Administrative Expenses
Conduct a thorough review of discretionary expenses:
- Team Retreats: Consider local or virtual options.
- Staff Professional Development (PD): Explore cost-effective alternatives like mentoring or shadowing.
- Office Space: Assess if scaling back is possible.
- Cost Controls: Ensure effective policies are in place to manage expenses.
- Benefits Analysis: Review utilization of benefits versus expenditure to ensure a good return on investment.
Organizational Processes
Evaluate all processes based on their criticality to core functions. Consider:
- What tasks can be eliminated or deferred?
- What can be outsourced, automated, or streamlined to improve efficiency?
Based on this analysis, develop three cost scenarios to correspond with your earlier revenue scenarios.
Conduct a Talent Skills Analysis
Using the scenarios above once again, assess your staffing readiness for all potential futures. You’d be surprised at what it can show, from highlighting skills gaps to putting a spotlight on talent capable of stepping up in the right situations. Here’s how Edgility recommends approaching the assessment.
Identify Key Competencies
Determine essential skills that align with your mission, including both technical and soft skills. If you’ve completed competency frameworks, these are a great place to pull that information from.
Choose Assessment Methods
Utilize a variety of tools to gather information.
- Surveys/Questionnaires: Gather self-assessments from staff.
- Interviews: Conduct in-depth discussions for qualitative insights.
- Performance Reviews: Leverage existing assessments to gauge skills.
- Skill Tests/Challenges: Implement assessments to evaluate specific strengths.
Communicate and Collect Data
Edgility will always advocate for transparent communication. Foster trust in employees and stakeholders by clearly explaining the purpose and benefits of the assessment you’re running to all participants. Decide on a specified time frame to distribute the chosen assessment tools and gather information to keep yourself on track and avoid prolonging your analysis. Ensure anonymity, to foster trust and encourage candid feedback from all participants. Follow these steps to get started.
- Analyze Results: Aggregate and analyze the data to identify common strengths, skill gaps, and areas for development across the organization.
- Develop Action Plans: Based on the assessment findings, create individual and organizational development plans. This may include training programs, mentorship opportunities, or targeted recruitment strategies.
- Implement Training and Development: Provide resources for skill enhancement, such as workshops, seminars, or online courses, based on the action plans created.
- Evaluate and Iterate: Regularly review the effectiveness of the assessment process and the impact of development activities. Adjust the approach as necessary to ensure continuous improvement.
- Foster a Culture of Development: Encourage ongoing professional development as part of your nonprofit’s culture to attract and retain skilled talent.
At the end of the assessment you should have a good idea of how you can move people into new roles – or keep them in existing ones – for each of your scenarios. Make sure to create personal development plans for each role to ensure readiness for every possibility.
When Restructuring or Downsizing is the Best Option
It is tough to realize changes in the funding landscape are going to derail your future plans. Nonprofit leaders, while fully capable of addressing reality, often possess a strong visionary approach. They look to what could be accomplished to build their mission and develop a strategic vision. It is disheartening to have to put those plans on hold. Nevertheless, nonprofit executives and board members can set themselves up for every possible scenario by following the advice above. As one of our founders, Allison Wyatt is fond of saying, “A smooth sea never made a skilled sailor.”
If your organization could use support sailing the current rough seas, Edgility’s decades of experience in the mission-driven sector can help you weather whatever the economic and political climate throws at you. Set up a strategy session with a member of our team today.
