During Good Times, Don’t Forget to Prepare for Rainy Days
“A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.”– Investopedia
This post on Carolyn’s Nonprofit Blog was written in fall 2018. Needless to say, in 2020 with the onset of COVID-19, stay-at-home restrictions and global uncertainly about the dramatic changes witnessed in all aspects of our lives, having a reserve fund has made sense. Now that it appears we are pulling out of the economic contraction, smart nonprofits will continue to add to their reserve funds while diversifying their fundraising techniques and conducting ever more in-depth research to identify more prospective donors. Not everyone is negatively impacted by a recession, so let cool heads and smart thinking prevail during challenging times.
See the links at the conclusion for more information.
The past few years, I have read articles and watched videos featuring leading financial experts discussing the possibility of a recession. White opinion remains divided, the thought that several predict rough waters ahead causes me to revisit the idea of nonprofit organizations establishing “rainy day,” or reserve funds.
From USLegal, “A reserve fund is a fund of money created to take care of maintenance, repairs or unexpected expenses of a business.”
Having watched nonprofits suffer intensely during the last recession of a decade ago – an experience we all hope will never be repeated – my advice for nonprofits during every year-end fundraising season is to be prepared.
Take some of your charitable donations and sock them away into a savings account or other fund where you can get to them easily if and when needed. You might even consider a specific major gift campaign to establish a reserve fund. Regardless, having such a fund in place can help with myriad situations, from recession and lagging donations, to helping your nonprofit launch an entirely new project or fund a new staff position. #JustDoIt
Noteworthy Media Coverage (Most Recent First)
National Council for Nonprofits, “Operating Reserves for Nonprofits” (timeless advice, helpful resources)
- William Watts for MarketWatch, “‘This is not going to end well’: Billionaire Leon Cooperman says stock market will be lower a year from now” (April 30, 2021).
- The Conference Board Economic Forecast for the US Economy (2021) paints a positive picture for 2021! I still believe a rainy day fund makes sense for nonprofits going forward. If it were me, I would save as much as you can, and in addition to protecting your nonprofit for a rainy day, those investments might be helpful for launching a growth initiative of some kind (a capital campaign, for instance).
- Shawn Langlois for MarketWatch, “The world’s biggest money manager says Joe Biden’s election is ‘good news’ for the global economy” (November 9, 2020).
- Independent Sector video discussion about nonprofits and the economy (September 17, 2020) – be sure to check back on YouTube for updates over time in the series, “This Week in Washington.”
- Gallup, “Americans Increasingly Expect Economic Recession” (March 26, 2020).
- Fidelity Charitable, “Sustain All Nonprofits” (March 20, 2020).
- The Editors of NPQ: Nonprofit Quarterly, “On COVID-19, the Recession, and Nonprofits: A Special Series” (March 17, 2020 concerning the Spring 2020 issue).
- Mark DeCambre for MarketWatch, “Here are 5 reasons the stock market booked its worst decline since 2008, and only one of them is the Coronavirus” (February 28, 2020).
- Sergei Klebnikov for Forbes, “America’s CFOs Are Warning Of A Recession. Here’s Why That’s An Important Indicator” (January 13, 2020).
- Daniela Cambone for TheStreet, “The ‘Greatest Depression’ Is Coming; This Is How to Prepare” (November 1, 2019). “Celente added that the Fed’s latest rate cut can be likened to ‘monetary methadone,’ where liquidity is pumped into a credit system that is already over-levered. ‘It’s just shooting in more money to keep the addicted bull running. It’s not boosting economies around the world, we’re looking at a global slowdown, and the numbers are there, and even people like the IMF, the World Bank, one after the other, they’re warning of a recession,’ Celente said.”
- Alan Murray and David Meyer for Fortune, “Economy on a Knife’s Edge: CEO Daily” (October 11, 2019).
- Ksenia Galouchko for Bloomberg, “Recession Fears Spike to 2011 High as Risk of Bubbles Spreads” (August 13, 2019).
- Jill Cornfield for CNBC, “One-third of Americans have cut their spending this year, and some fear a recession is coming” (July 1, 2019).
- Erik Sherman for Fortune, “A Majority of Economists Think the Next Recession Will Come by the 2020 Election” (June 4, 2019).
- Mary Romano for Fortune, “This Recession Predictor Just Hit Levels Not Seen Since 2007” (May 30, 2019).
- Jen Wieczner, Rey Mashayekhi, Lucinda Shen, Erik Sherman, Shawn Tully, and Nicolas Rapp for Fortune, “Spot the Next Recession: Today’s good times can’t last forever. Here’s how to decode the economy’s messages before a bear market eats your savings” (April 24, 2019).
- Chris Morris for Fortune, “Alan Greenspan Warns Investors: Bad Economic Times Are Looming” (December 18, 2018).
- Brian Sozzi for Yahoo Finance, “Not terrified of a recession? These stocks hint you should be” (November 12, 2018).
- Emily Stewart for Voz, “How close are we to another financial crisis? 8 experts weigh in” (September 18, 2018).
- Sean Williams for The Motley Fool for USA Today, “6 signs we’re closer to the next recession than you think” (September 5, 2018).
- Laurence Pagnoni for NonProfitPro, “Should You Embark on Cash Reserve and Capacity Campaigns?” (August 30, 2018).
I have an article on Carolyn’s Nonprofit Blog called, “Economy and Philanthropy” you might also enjoy. It dates back to when I launched my blog during the economic downturn of the late 2000s and early 2010s. Looking back to those days, I would also say, not every business nor philanthropist suffers during a recession. Adjust your fundraising accordingly and do your research.