Ready, Set, Inflation*
(This 8-part blog series was written in December 2022 to be a resource for nonprofit CEOs, EDs and Board members.)
Inflation is defined as a general increase in prices resulting in a decrease in purchasing power of money (this is the Michael Corley definition). In short, you cannot purchase as much of something with the same amount of money as you could previously. Inflation is sustainable meaning that once prices increase, the prices will continue at the new level. A simple example – if you bought something a year ago for $100, and inflation has been 7% over this period of time, the same product would cost $107 this year. Bummer.
Interestingly, in economic terms, things have been strong over the past decade. Sure, there have been blips, but the economy has generally been strong with low inflation. Prices have been relatively steady and the purchasing power of the dollar was consistent. This until 2020 and then inflation reared its ugly head.
In 2021, the inflation rate was 7%. In 2022, the inflation rate was 7.1%. (Click here for the source.) Using the example above, a product which cost $100 in 2020 would cost $114.60 right now. (Yes, inflation is compounding.)
Regardless of the math, we all know that prices have increased over the past two years, and prices are expected to continue rising in 2023.
For funders, the impact to you is that your grants and funding will not “go as far as previously thought.” In addition, your operating costs will increase because everything from insurance to wages to rent to supplies are increasing in price.
For agencies, the impact is your costs are rising similarly. This means that dollars you receive in the form of grants may not cover the program and other expenses as they did a couple of years ago.
As costs rise (insurances, wages, rents, providing services for clients, etc.) you will face different challenges than have been experienced over the past 10 years. Suddenly, the cost for serving clients has increased significantly. Grants you wrote a year ago for $x which were based on costs at that time, may now be inadequate to cover your costs. Funders, grant dollars you committed to months ago may no longer suffice.
As the CEO/Executive Director of your nonprofit organization, it is your responsibility to prepare your organization and your teams for the impact of inflation.
So what might you, as the leader, do? Here are 7 suggestions:
- Review your Mission Statement to remind yourself of the purpose for your organization.
- Engage your leadership team and your staff in discussions about your organization’s response to rising costs. Educate both about the challenges posed by inflation.
- Scrutinize the organization’s expenses and eliminate waste. Develop a cash monitoring process.
- Consider adjusting the annual budget to reflect the new situation.
- Monitor your funding, whether grants or earned income.
- Get aggressive on fundraising…before it is too late.
- Raise your prices.
Click here to receive the downloadable version of this blog series
Click here to read the next blog in this series
Click here to listen to the accompanying I 501(c) You – The Podcast For NonProfit Board Members episode
*Portions of each blog in this blog series were written with the use of artificial intelligence.