Building Financial Stability: How Nonprofits Can Prepare for Economic Downturns

More than half of nonprofit leaders (55%) said their biggest concern in 2025 is the financial health of their organization, according to an Urban Institute study conducted in late 2024.¹ A higher percentage (65%) has concerns about generating revenue. While these two issues are certainly challenging in almost any economic environment, they may be higher now with the U.S. economy shrinking and consumer spending slowing in the first quarter of 2025.² The uncertain environment highlights the importance of developing a robust long-term financial strategy as soon as possible.

Preparing a solid strategy can help mitigate the impacts of rising costs, workforce reductions, potential loss of government funding, and reductions in donor support. Effective steps may include diversifying income sources, cultivating and educating donors, leveraging technology, and forming partnerships with other nonprofits.

To help identify the right steps for your organization when facing challenging times, here’s a look at five ways the economy may affect operations.

Understanding the effects

1. Increased prices. If you’re running a foundation or endowment, you understand that nonprofits can’t react to rising prices during inflation like businesses can, such as raising prices or securing a bank loan. It may be necessary to decide which services your organization can and can’t afford to provide. This could be challenging since more people may be turning to your organization for help.
2. Staffing. In an economic downturn, you might need to cut costs by letting staff go. Creative solutions can help. You might partner with other nonprofits to share staff or use technology to automate tasks and boost digital marketing. Encourage volunteers to give more time and resources or recruit new ones. Keep them engaged with regular communication and requests.
3. Decreased income. Government grants and contracts you rely on for operational expenses may be cut back. In addition, donors may be contributing less. It may be necessary to scale down previously successful fundraising events and campaigns but might not be advantageous to discontinue them. Also, consider diversifying and broadening fundraising capabilities through planned giving techniques that provide immediate cash flow to your organization such as a charitable lead trust and other charitable giving vehicles.
4. Inflation. Donors have historically decreased the size of their individual and institutional gifts when there is a substantial rise in inflation, without realizing that their donation also has less value and purchasing power. At an inflation rate of 3%, a donation of $100,000 has about $97,000 buying power; at the high rate of 9% in 2022, it only had $90,900 buying power.³ It may be necessary to educate donors about why raising their donation amounts in accordance with inflation is crucial for your organization.
5. Reputational risk. It could take only one aggrieved donor or charity recipient to cause reputational damage to your foundation or endowment. It’s important to communicate with the community and be transparent about program or service cuts to help avoid misunderstandings.

Making a plan

Taking steps to create a comprehensive plan can help with developing more opportunities for your nonprofit to sustain economic impacts. However, the time and knowledge required to employ strategies may be overwhelming, especially if yours is a smaller nonprofit. That’s when it can be beneficial to collaborate with an experienced endowment and foundation advisor.

These are some of the ways a financial partner focused on nonprofit planning can help:

• Creating a long-term financial strategy
• Setting up planned giving vehicles
• Protecting and nurturing relationships with donors, volunteers, and other nonprofits
• Educating donors on giving and fundraising opportunities
• Counseling board members and your staff

Getting help

At Mercer Advisors, we have a team of advisors and specialists who have spent decades working with endowments and foundations as well as serving on nonprofit boards in their own communities.

We can:

• Partner with you to create a long-term financial strategy that encompasses your organization’s mission, cash flow, balance sheet, grantmaking cycle, and investments
• Provide estate planning strategists and family wealth advisors who can work directly with your nonprofit and its key donors to set up advanced giving vehicles such as a charitable remainder unitrust
• Serve as a resource to help educate your donors about charitable giving opportunities through webinars, in-person events, social media, and other channels
• Work directly with your board members and executives to develop best practices in governance and fulfill their fiduciary duties, such as complying with the Uniform Management of Institutional Funds Act (UMIFA)

Learn more about our Endowment and Foundation Group here. When you’re ready to receive guidance on how to improve your ability to face the economy’s impact on your organization, let’s talk.

¹“Nonprofit Leaders’ Top Concerns Entering 2025.” Urban Institute, April 9, 2025.
²“The U.S. economy shrank in the first quarter of 2025.” Consumer Affairs, April 30, 2025
³“What is the Current Inflation Rate?.” Inflation Data, April 10, 2025.

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