How the Supply Chain Problem Affects Your Nonprofit

The supply chain issue in the U.S. and abroad is something that affects all of us. However, it has ramifications for your nonprofit beyond what you may think. Sure, if you’re an organization reliant on providing things to people you serve, it could be an incredible challenge. For instance, I worry about clothing drives during the winter season and food at shelters.

Still, the supply chain problem is likely to impact your nonprofit, perhaps in ways that aren't direct and clear. Further, people in the finance industry say that this is an issue that will challenge consumers, businesses and nonprofits deep into the coming year.

What’s Creating the Supply Chain Problems

Logistics experts saw a problem in the global supply chain in 2020 with the pandemic. Do you remember panic- buying toilet paper? In short, the pandemic showed how our highly connected and the technology-driven world still can't always get it right in the tech age.

The pandemic caused massive disruptions as the manufacturing and supply of products and services were delayed. And now, as the world begins to move past the pandemic (and learns to live with it), the pent-up demand exposed logistical problems. There's a lot of demand, less supply and many logistics issues.

How All of It Affects Your Nonprofit

The chances are that you and your family are being impacted by the price of gas and transportation, energy, food and everything else. Here are three ways it impacts your organization.

Your Nonprofit Team

One of the fundamental ways that the supply chain issue affects your nonprofit is with your team. Think of it; if you're a nonprofit leader and you feel the pinch every time you have to pay for something, your team is feeling the same. They might not say it to you, but they feel it, too.

Operational Expenses

Your chief financial officer and finance committee of the board probably have a heightened awareness about the expenses for your organization. Again, just keeping the lights on is costing more. Moreover, suppliers are passing the costs to you and not extending credit or terms as they’ve done in the past because inflation is at a high, and their business costs also rose.

Fundraising Revenue

Your nonprofit fundraising may also be on the decline. It depends on whether your donors and supporters are highly affluent and give to you from their donor-advised funds (DAFs). If your database has a significant share of your fundraising from low-dollar donors, you may be experiencing (or soon will be) a pull-back in fundraising as discretionary dollars shrink.

How to Maneuver Through the Tough Times

In the many conversations I have had with wealthy donors and financiers, I can say the outlook for next year is not optimistic. The market and the economy are two different things; however, the economy is affected when the market drops. Let's not forget the market events of 2008, which can potentially happen again, leading to a nonprofit crash.

What should your nonprofit do right now to protect your organization through the supply chain problem and likely tough economic times of the coming year?

• Build a reserve fund. Prepare your organization. In other words, you need to diversify income and build at least six months of operating revenue with a reserve fund. Don't think that tough times aren't coming. Prepare now so you don't get wiped out as unprepared nonprofits do every time there's an economic crisis.
• Evaluate compensation. Have transparent conversations with your team. If you pay them below what they should get paid, something has to change. Either they'll leave, or you need to pay a competitive salary. Speak to your board members and realize that losing talented people costs you significantly (time, money, talent, knowledge). Be creative in your compensation packages.
• Review your expenses. And anywhere there's waste, get rid of it. However, not investing in your nonprofit business is not a solution. So, redirect unproductive expenses into optimized technology bundles, which could help you better target and increase your fundraising revenue.
• Analyze your fundraising revenue streams. Take a look if there’s a dip in your fundraising, especially from lower-level donors. If there is, you have to make it up. Approach donors who may be more willing to step in to shore up your funds about DAFs. Recruit major donors into a cohort group to invest in your institutional or organizational capacity, scalability and sustainability.

Every time there's a significant crisis, nonprofits fail because of poor planning and preparation. The reality is that we know the economy will expand and contract. It isn't anything new, and it shouldn't be something unanticipated.

Therefore, because social good competition comes from entities beyond nonprofits (e.g., social enterprises, B-Corps, for-profit businesses, impact investors), the best thing you could do for your organization is a top-to- bottom financial assessment (income and expenses). Prepare, plan and execute consistently. That way, once the challenging economic times arrive, you'll be best prepared.