“Reading the headlines reflecting concerns and jitters about the direction of the economy is causing leaders of nonprofits to ask how it will affect their organizations. For some people, a state of worry has set in.”

We can now say with certainty that all nonprofit leaders share a deep concern about the rest of this year and the prospects for the next couple of years. In that same blog post I encouraged organizations to understand their income mix and focus on what they could learn about the trends affecting their dominant income sources. Different income sources typically have different triggers and cycles. Foundation grantmaking, for example, changes at a slower pace than individual contributions because foundations calculate their endowment “payout” based on average balances over two years or more, while individuals make giving choices partially based on how confident they feel right now.

A lot has been written, and will be written, about the impact of the economy on nonprofits. Some hopeful news comes from the Philanthropy Journal’s article Past sheds light on recession giving, which notes that overall giving doesn’t drop as much as you might fear. Other stories, however, add to the worry, such as A gloomy giving outlook about corporate giving. I sympathize with the reporters who are writing these stories, though, because the real answer to questions about how the current economic environment is affecting nonprofits is “We don’t know yet.” Every week brings more questions and we all hope that the direction for the future will start to be clearer after the election.

On top of everything else, now is the time for all nonprofits to pay attention to developments that will impact the state budget next year. The forecast doesn’t look good according to the Minnesota Budget Bites blog. State funding dominates for human services, education, and many health care organizations, and it is important for many other nonprofits. This is the time and place to prepare for policy discussions, and you need to be a part of them. It’s easy to stay up to date through the blog and other information and meetings sponsored by the Minnesota Council of Nonprofits.

Because of this uncertainty, and the fact that all the indicators look weak, what had been concern has risen to the point of anxiety.  Emily Saunoi-Sandgren, who blogs at the Humphrey Institute’s new pubTalk blog, wrote Much ado about the economy last week looking for signs that these challenges might lead to some bigger ideas and discussions. Yes, it is time for some big discussions (such as the conversation around public policy and the state budget). Unfortunately, the reality for many nonprofits is that they need to be very cautious and careful.

I’m being blunt here, and it makes me feel like a depressing economics professor, but I have a lot of conversations with nonprofits that don’t have a lot of reserves and so their options are limited. So what’s a nonprofit to do?  Here are some fundamental steps you can take:

• Dig in to analyze what income is reliable and what is not.
• Understand the costs of delivering programs and services.
• Keep close track of increases in demand for services and how much of that increase is driven by the same economic factors.
• Scrutinize any plans for expansion carefully until you are confident that the funding is available to fully support the expansion.
• Double check every assumption.