By Steve Abbey, Managing Director of Institutional Government & Nonprofit Banking, Huntington Commercial Bank
Key takeaways
- Strengthen and optimize working capital management.
- Expand donation collection methods to meet donor preferences and streamline the charitable giving process.
- Explore new fundraising methods that resonate with donors.
As holiday campaigns come to a close, it’s time to reflect on what a difference a year makes. In 2022, donors reassessed their finances due to the economic climate, which led to charitable giving declining 3.4% from the prior year – and a more alarming 10.5% when adjusted for inflation†. According to Giving USA’s annual report, this drop in donations has only been seen three times in the last 40 years‡.
This past year closed on a higher note for nonprofits than the previous year. Hopefully all organizations saw marked improvements in their fundraising. Though giving might be recovering from 2022’s rare decline, this volatility offers a warning to nonprofits, educational institutions, and other entities reliant on donations. Now is the time for organizations to become more resilient and adapt their strategies to better meet the changing giving landscape.
Strengthening working capital management
Unpredictability can hamper long-term planning. Developing a robust strategy for donations and cash flow management can help nonprofits, government agencies, and higher- education institutions stabilize immediate needs while pursuing their goals.
Enhancing working capital
Organizations can take advantage of the current high interest rate environment by investing collected funds safely. When interest rates are high, returns on liquid investments increase, so this approach could result in earning more from existing cash to help operations.
Part of this strategy could include pushing for increased donations, and on an accelerated basis. Doing so generate more cash for investment purposes. Launching fundraising campaigns that generate a sense of urgency, such as offering matching gifts with a deadline, could spur donors to contribute more, and bring donations in sooner.
Maintaining liquidity
Nonprofits relying on sizable charitable gifts know all too well the impacts of stock market turmoil and economic volatility on giving. Donors are often hesitant about charitable giving during downturns due to the wealth effect, leaving many organizations with fewer operating dollars than expected. This fact underscores the importance of having an operating cash reserve to stabilize operations during leaner times.
Currently, the attractiveness of earning higher rates on liquid investments is that it can provide additional unrestricted revenue for operations. Organizations could benefit from investing a reserve of 3-6 months in operating expenses in easily accessible instruments, such as money market funds, that can be accessed for operations during downturns.
Maintaining adequate liquidity while optimizing those cash investment returns can be tricky and might require a financial expert to find the right strategy.
Handling outflows
It’s crucial to manage outflows efficiently to maximize working capital. While timely payments to vendors and partners are essential, organizations should also avoid paying too early. Keeping that working capital on hand longer can often be more useful than sending payments ahead of schedule, as organizations can potentially earn interest on those funds.
There are many tools available to manage vendor payments on a just-in-time basis. Among these financial tools are commercial credit cards. Paying vendors on time with these cards allows your nonprofit to extend its own payment timelines, as card bills are usually due 25 days after each statement. Cards often carry additional benefits like rebates. This extra unrestricted cash can be used to support operations during lean times. Organizations should be aware they will still be beholden to the terms associated with the card.
Enhancing visibility into funds
Investing in a platform that consolidates donations from multiple sources can offer a more comprehensive view of an organization’s working capital position. Matching these inflows with the expected payments creates a cash flow model. Enhanced visibility into available cash improves the ability to report to leadership and board members. These platforms can help organizations identify opportunities to invest more efficiently, pay bills on-time, and control cash flow.
Managing restricted funds
In 2022, a Voluntary Support of Education report found 79% of contributions to U.S. higher education institutions had usage restrictions§. These donations were directed toward restricted endowments or carried limitations on their operational use. Managing and reporting on these funds can be resource intensive.
Restricted fund management services can help ensure donations are used as intended. Relying on a financial institution or other entity to perform this service can ease the burden of compliance on administrative staff, whose time can be spent reporting to the donor on what their gift is accomplishing at an organization.
Expanding donation collection methods
Diversifying donation channels could help meet evolving donor preferences and maximize their gifts. While many institutions still rely on checks from donors or alums, younger generations strongly prefer online options. One study found that 65% of Gen-Z and 80% of Millennial respondents admit abandoning an online checkout if their preferred payment method isn’t available≠. Offering more payment options could help capture givers who otherwise might not complete the transaction.
Another benefit to expanding donation channels is expediting donations. Integrating digital wallets, credit cards, automated clearing house payments (ACH), and mobile giving platforms allow donors to make contributions right away, rather than pledging funds for a future time. These options also allow for recurring donations, which could lead to higher contributions over time and a more predictable donation stream – because they make donations easy and in-the-moment.
Using these options, organizations can focus on further streamlining the donation process rather than spending time receiving and collecting pledges. It’s worth noting that some of the collection methods above do carry fees or take a percentage of funds collected. Despite the cost, these options could save organizations time and money in the long run.
Finding new methods of reaching donors
Donor demographics are changing, and competition for charitable gifts is fierce. Traditional fundraising methods might not always be effective. Donation data can be used to improve donor profiles. Managing donor information in real time through centralized systems makes it easier to foster stronger donor relationships.
Here are a few methods to consider:
Easy and affordable
Social media fundraisers. Social media platforms have become essential avenues for contributing to causes. Some organizations are using social media donation tools or fundraising stickers as part of their fundraising strategy. These platforms are often user-friendly and include walkthrough guides for setting up a campaign.
QR codes. Blend traditional mail with modern tech by adding QR codes to donor letters or fliers. Since 47% and 46% of surveyed Gen-Z and Millennial respondents have used a QR code to access a nonprofit’s websiteⱠ, this tactic likely resonates with a younger donor.
Pros and cons:
These options are both relatively inexpensive and require minimal expertise. There are few financial downsides to investing time these endeavors.
Cultivating a social media following can be time-consuming and unpredictable. Organizations might feel their efforts are wasted if they target the wrong audience or market to a narrow group.
Easy but expensive
Partner with a social media influencer. Gen-Z and Millennial donors are four times as likely to learn about causes from influencers and celebrities than previous generations, and 69% of those surveyed in this group prefer to hear from organizations on social media††. Establishing a relationship with an influencer who is passionate about a cause, program, or mission could extend reach.
Tell your story through video. Professional videos demonstrating impact can be shared on an organization’s website, social platforms, and via email. These types of videos are often more compelling than written accounts, but the cost of producing a video can be high.
Crowdfunding platforms. These platforms have become increasingly popular for fundraising for both individuals and organizational causes. Nonprofits and educational institutions could use one of these platforms to promote specific campaigns with tangible goals, such as new construction or a seasonal social need.
Pros and cons:
Working with external partners could enable a more hands-off approach to marketing. If an influencer message or video goes viral, the potential monetary gains could be significant.
Hiring influencers can be expensive and unpredictable. Nonprofits without a clear target audience in mind may end up hiring an influencer who does not fully resonate with the intended audience. Similarly, the high price tag of professional video production can be a turnoff for nonprofits. While it is possible to produce videos on a budget, depending on your audience, a lack of quality might turn donors away.
Difficult and affordable
Peer-to-peer fundraising. Empowering current supporters to fundraise on behalf of an organization can be cost-effective and increase local visibility.
Harness the power of volunteers. Organizations with few funds to spend toward marketing have found success by engaging with volunteers to collect and share community stories related to their mission. These can be shared on the website, social media, or even local media outlets.
Pros and cons:
Nonprofits and other organizations with smaller operating budgets can make their dollars go further by relying on existing supporters and volunteers. Word-of-mouth promotion could lead to more authentic conversations with potential givers.
Training volunteers and requesting outreach support often require significant time commitments. For nonprofits with fewer staff members, this can be a considerable constraint.
Difficult and expensive
Webinars and virtual events. Organizations have found that hosting virtual fundraising events gives donors an interactive platform to engage with a cause. Reinforcing mission statements during these events could result in more loyal donors, who are reportedly 1.5 times as likely to donate when they feel admiration or gratitude for the work an organization does‡‡.
High-end fundraising events. Organizing gala events, charity auctions, or high-profile speaker events can attract high-net-worth individuals and garner significant media attention. However, such events require substantial planning, investment, and resources.
Pros and cons:
These high-end events could bring in donors and businesses offering sizable charitable gifts. Those donations could help sustain a nonprofit’s mission for longer, making the opportunity worth the price tag.
Galas, charity auctions, or high-profile speaker events could be beyond the organization’s budget. Carefully considering the potential donation amounts against the cost of the event is needed for this category.
Navigating the charitable giving landscape
While charitable giving seems to be in a state of flux largely influenced by economic factors, adopting new strategies could help organizations navigate challenges and further their mission. To learn more, reach out to our Institutional, Government, and Nonprofit Banking team.
