How to Prepare Your Grantmaking for Economic Uncertainty (and Why Now is Different)
Recessions are part of the economic cycle, but that doesn’t mean anyone in philanthropy is excited to see a potential one on the horizon. These downturns are often accompanied by layoffs, housing uncertainty, and an increase in general anxiety. Not to mention shifting political policies and higher prices on everyday items.
During a financial downturn, your grantees are likely to face higher demand while dollars—including yours—don’t stretch as far. As a funder, that requires a tightrope walk along your mission, balancing empathy with sustainability.
When economic uncertainty looms, grantmakers must center their grantees and communities even while they evaluate what the recession means for their own organization.
How This Downturn Could Be Different for Grantmakers
While recessions typically strain financial resources and increase demands on nonprofits, today’s economic landscape is shaped by a few unusual factors, making the road ahead particularly complex.
Uncertainty plays a big part in our current economy. Despite most indicators showing a strong economy over the past few years, many people across the U.S. felt that inflation, geopolitical issues, and wage stagnation were hitting their wallets harder than the offsets from investment increases. Now with uncertainty around how tariffs and changes in the federal government will affect access to goods and services, the philanthropic sector will likely feel the increased demand long before economic indicators reflect the downturn.
Layoffs are common ahead of and during recessions, with more than 40 million people discharged from their jobs in 2020. But this downturn could be different. With tens of thousands of layoffs coming from federal government roles, demand may come from places and people who haven’t needed this level of support before.
The organizations providing the support may be different than in past downturns as well. Many nonprofits are feeling the strain from a pause in federal grant funding and are working to shift their programs to align with the changes in government priorities. Government downsizing may mean that support programs may take more time to reach people in need.
Unlike the 2008 financial crisis, which was primarily a banking-driven recession, and the 2020 recession brought on by COVID-19, today’s downturn is marked by a convergence of factors. Leadership at grantmaking organizations must remain flexible and forward-thinking, recognizing that traditional playbooks may not apply. A thoughtful, well-informed approach will help you navigate these challenges effectively and drive impact in an unpredictable environment.
Here are four ways you can prepare your organization and your grantees for a possible market downturn.
1. Stay in Touch with Your Grantees
During a downturn, situations may change quickly for both funders and grantees, so it’s important to keep lines of communication open.
The first step is to create multiple channels for feedback. Make sure you are gathering information directly from community members as well as trusted industry resources and associations, so you have a full picture of how the economy is affecting your community.
Open communication channels can help you recognize changing demands. Be prepared to broaden your mission so you can address important needs within the communities you serve. Talk with your leadership now so you have a process in place for standing up a new or temporary grant program to address evolving needs.
According to the 2023 Nonprofit Workplace Survey, 51.7% of nonprofits have more staff openings than before the COVID-19 pandemic. That’s already leading to a delay in services for some organizations. Should demand increase, understand that your grantees may be doing even more with even less. Provide leeway on reporting deadlines and requirements to give them a little breathing room—or forego applications altogether for recurring grantees.
Finally, know your own organization’s limits. Grantees facing increased demand may require additional funding, but it’s vital to assess whether your foundation can provide more without compromising long-term goals. Many funders have raised their payout percentage, but that might not be right for all organizations. Have transparent discussions about constraints so your grantees can plan accordingly and explore other avenues for support if you aren’t able to provide additional funding, for example.
Staying connected to your grantees during a recession isn’t just about gathering information—it’s about fostering trust and collaboration. Open communication helps ensure that your funding decisions are informed and that grantees feel supported, even in the most challenging economic environments.
2. Be Transparent About Changes in Funding
Your grantmaking leadership should consider how the inflationary economic cycle will affect your resources and know ahead of time what hard decisions you are willing to make.
First, understand funding risks by evaluating your organization’s primary income sources. Are your funding streams stable, or are they tied to volatile markets or other external factors? Knowing this can help you gauge potential shortfalls early. Run a cash flow forecast to identify any gaps that may occur based on stock market returns or changes in your grant programs.
Discuss with your board whether you’re willing (and able) to increase your endowment draw or dip into your operating reserves. While this approach requires careful consideration, it could provide necessary flexibility during a challenging grant cycle. Similarly, assess your stock market investments. Can you afford to allocate some funds to more stable options, even if it means pulling money out of higher-risk markets temporarily?
If your foundation accepts donations, consider how a potential recession may affect donor behavior. Fewer donors or smaller gifts may require adjustments to your processes. Fine-tune your fundraising efforts to ensure they resonate with supporters.
Also, be proactive with your funding decisions. Running budget scenarios early allows you to make informed choices and reduce surprises. If you decide to pull back funding options, make sure to provide ample runway to your grantees. It’s likely you aren’t the only funding source that is pulling back.
Know which grantees rely on you for a majority of their funding so you can prioritize accordingly, or make introductions to other organizations that may be able to fill a gap.
By addressing these issues head-on, you can foster trust and stability, even during uncertain times.
3. Look for Non-Financial Resources You Can Provide
Many organizations were not around for the 2008 recession and could use non-financial support to help them manage the changes.
Start by identifying what information your grantees need most right now. Are they facing questions about maintaining operations, reducing expenses, or identifying new funding sources? Proactively share resources such as templates for strategic budgeting or checklists for cost containment best practices. These tools can empower your grantees to make informed decisions and better prepare for economic changes.
In addition, help grantees strengthen their fundraising strategies. Offering access to webinars or guides on donor engagement during a recession can help organizations sustain or even grow their funding. Encourage grantees to explore innovative approaches, such as diversifying revenue streams, building partnerships, or leveraging matching gift programs.
Create opportunities for communication among your grantees so they can share best practices and collaborate on solutions. Whether it’s hosting virtual roundtables or facilitating online discussion forums, building a sense of community can help organizations feel supported and exchange valuable insights.
Finally, look for and form peer partnerships with other grantmaking organizations. If your expertise doesn’t cover areas like cybersecurity, financial planning, or wellness support, connect with others who can provide these resources across your communities. Sharing knowledge and tools through these networks not only strengthens grantees but also equips your organization to make a larger impact in times of economic uncertainty.
4. Make Sure Your Systems Are Up for the Task
Having streamlined and integrated systems powering your grantmaking can help you stay agile and make data-driven decisions on how best to support your community.
Start with flexible applications that feed directly into your CRM. By eliminating the need for manual data entry, these applications ensure that critical information flows seamlessly between systems. This integration reduces errors, saves time, and provides a clearer picture of the organizations and projects seeking funding. When your CRM and grantmaking tools work together, you can spend less time managing data and more time focusing on your mission.
Next, adopt easy-to-follow review and disbursement processes. Delays in funding can have real consequences for grantees and the communities they serve. Streamlined workflows make it easier to move applications through each stage, from review to funding, so you can get money into the hands of those who need it faster. This kind of efficiency is particularly crucial during challenging economic times.
Finally, make the most of dashboards and intuitive reporting to support data-driven decisions. Customizable dashboards can provide at-a-glance insights into overdue applications, funding trends, or year-over-year impact in key areas. This real-time data empowers you to quickly adjust strategies and allocate resources where they’re needed most. Strong systems with actionable dashboards are not just helpful—they’re essential for adapting to changing circumstances while maintaining focus on your goals.
Start Having Conversations Now
A recession creates challenges for nonprofits, but it also presents an opportunity for grantmakers to strengthen relationships and provide meaningful support. According to a survey by The Center for Effective Philanthropy, 90 percent of nonprofit CEOs expressed concern about how a recession could impact their organizations. Now is the time to engage your grantees in open, transparent conversations about their concerns and needs.
Your grantees want to be proactive in ensuring their constituents receive the support they need during potentially difficult economic times. By opening the lines of communication, you can help them prepare for what lies ahead, even if the path forward is uncertain. These discussions allow you to understand how a recession might affect their programs and help you adapt your funding strategies accordingly. Starting these conversations today demonstrates your commitment to providing proactive support for constituents and strengthening the foundation of trust between your organization and your grantees.
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