July 31, 2024
November 5th we are electing a new President.
What does a presidential election in 2024 mean for nonprofits? Likely, you have already started to experience the 2024 revenue impact with annual fund and major gift prospects. Donors are shifting focus ramping up support for political campaigns. In addition to nonprofit revenue uncertainty, potential tax code changes and stock market impacts are anticipated with a new administration. Has your nonprofit prepared, and budgeted, for what is anticipated to be a seismic philanthropic shift for 2024 H2?
As part of your annual business cycle, you analyzed YOY forecasting revenue and expense when establishing the 2024 board-approved budget. Often nonprofits create a single annual budget and don’t reference the projections again until the year-end is approaching, essentially wasting the energy of the planning process and relegating the exercise to busywork. That isn’t how your nonprofit operates, right?
Do you plan for operational shifts as the year proceeds? As leaders, we all build an aspirational Operating Plan 1 (OP1) for January North Star, then what?
Nonprofits need to take a tip from for-profit entities and treat the forecast as a living document.
Operating Plan 1 (OP1) is your board-approved annual budget and operations plan that projects outcomes based on factors the nonprofit can control: staffing, mission impact, expenses, etc. Every nonprofit builds an OP1, it could be called the budget, the forecast, etc, but it takes time to build and the board of directors expects to approve the plan. Everyone on staff and leading the organization knows that the annual budget is important. Projecting the activity and outcomes for staff leads to decisions to approve or reduce headcount, invest in the organization, and innovate on mission delivery. And hitting the target annually helps establish trust with stakeholders including board members.
Sophisticated nonprofits and for-profit companies are always evaluating OP1. The OP1 document is used as a guide for managing the ebbs and flows of the business, ensuring team members remain on track to meet or exceed deliverables.
A best practice is for nonprofits to evolve and update their projections as the year proceeds building an Operating Plan 2 (OP2). This step is often missed as the sheer exercise can be overwhelming. But there is a reason to take operational time for planning because mid-year we have more information that helps us make better data-driven decisions. The time to strike may be mid-year when trends are rearing that impact the business, OP2 allows for projection changes accounting for macroeconomic shifts throughout the year.
OP2 is designed to buffer the shifts that we couldn’t have expected. Maybe we need to adjust our forecasts downward to help motivate the team and set realistic expectations. For morale, downcasting expectations can ensure your staff remains focused even when expected activity outcomes do not come to fruition. Conversely, favorable market conditions may present the nonprofit with an opportunity to double down on activity that is seeing results. Perhaps now is the right time to add FTEs, to invest in the mission, or to staff for increased resource development volume.
Far too often the annual budget is considered a rigid document whereas it should be a living reflection of the true state of the organization.
The revenue shift is underway.
In December 2023 and January 2024, the budget we built was in anticipation of a snoozy potentially non-revenue-impacting presidential race. It was expected that the race was not likely to inspire action in the younger generation nor gather national motivation. Biden dropping out and Harris stepping in causing a major macroeconomic shift to which nonprofits must respond.
Now more than ever politics matters, especially to the younger generation of donors: a cohort we have been cultivating for years as a revenue stream.
The shift is already underway. Harris has raised previously unfathomable donations from small-dollar donors at a pace we haven’t seen since Obama in 2008. This unprecedented change in macroeconomic conditions has caused an influx of funding for Trump as well, he is continuing to raise historic levels. Now is the time to slow down and evaluate OP1 building a new OP2, fueled with the knowledge we have in Q3, accounting for information that wasn’t available in Q1. An operational plan shift will create a more accurate picture for the remainder of the year, building trust with all parties.
All things being equal the most significant comparable year to 2024 is 2016, when Hilary and Trump were in a heated battle. The similarities are uncanny: a more established female politician versus a traditional populist candidate. Will the same trends occur in 2024 that impacted revenue in 2016? Inflation is part of this discussion as well, in 2024 you need $131 to equal $100 in 2016 dollars. We already know that donations are decreasing by 2% versus last year. The impact of reduced funding plus the reduction in spending power of 31% creates a vicious storm setting the industry up for failure.
Have you analyzed the revenue results from 2016? What were the trends for your nonprofit?
It’s not all doom and gloom.
No two nonprofits are the same. Advocacy organizations may see revenue increases whereas organizations focusing on helping the unhoused may see revenue decrease. The reality for both sides is that nonprofits can’t make mission-critical decisions without properly understanding the data and analyzing macroeconomic trends. In a time of future uncertainty, the best way to stave off failure is to plan effectively.
For many nonprofits continually evolving the Operating Plan seems daunting. The good news is that now may be the time to analyze trends and establish a three-year strategic plan with buy-in from your team and board. With a strategic reference document to serve as your North Star you are one step closer to consistency of mission and business. Spoiler, that multi-year strategic plan you build, is also a living document and you must always bring tomorrow’s knowledge to the plan, as we know more tomorrow than we do today.
Don’t be afraid to call your shot! Put the plan that lives in your head in writing. You may find that your leadership team, staff, and board of directors aren’t aligned. Now is the time to collaborate with all stakeholders and start all parties rowing in unison. You can’t, through sheer will alone, demand revenue or change public policy to be more favorable, forcing your original uneducated plan into reality. You can only control what you can control, for all other decisions we need strong data, if you can’t get your data, find a partner who can help.
How to action annual operational changes.
You don’t have to do this alone, bring in a fractional COO to help you put the process in place so you aren’t overwhelmed. A great fractional leader can guide the organization through change management, easing the burden of evaluating your annual OP planning and helping establish the multi-year strategic plan documents.
You need experts who can provide fresh eyes and merge your organization’s historical data with the marketplace trends building an aggressive and realistic plan that can be achieved. The right strategic partners and a strong NGO Strategy will help you meet your short-term and long-term objectives. An established and repeatable annual process is step one to operational excellence.
Disrupt the process so you can support the mission and focus your work. Let’s protect the industry with a strong NGO Strategy. Contact me directly, to explore your immediate options.
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