Picture this: A well-established nonprofit organization—let’s call them “Hope for All”—was thriving in its mission to provide education and resources to underserved communities. However, last year brought a series of unexpected challenges that threw them off course. A sudden cyber-attack compromised their donor database, halting their operations. Soon after, a large donor unexpectedly pulled their funding, creating a significant gap in revenue. To make matters worse, an unforeseen event forced them to cancel their annual conference, which was a major source of income for the organization. These setbacks caused instability across the nonprofit, leaving them scrambling to adjust.
It was only then that Hope for All realized they had been operating reactively, constantly putting out fires instead of proactively planning for the risks they faced.
But Hope for All isn’t alone. Many nonprofits don’t take the time to assess the risks they face until it’s too late. The question for your organization is: Are you acting reactively like Hope for All—or proactively, preparing for risks before they arise? A well-rounded risk assessment can help you move from reactive to proactive, protecting your mission for the long term.
1. Traditional Risks to Address in Your Risk Assessment
Many nonprofits, like Hope for All, focus on their mission and only think about risks once they’ve already experienced a setback. But addressing some of the traditional risks ahead of time can prevent costly interruptions down the road. Consider these key areas in your risk assessment:
- Commercial liability: Imagine an incident where someone is injured during one of your events. Instead of reacting to potential lawsuits, securing commercial liability coverage now ensures you’re protected before something happens.
- Professional liability: Nonprofits providing advice or services can face claims of errors or omissions. A proactive approach involves ensuring you have the right professional liability coverage, so you’re never caught off guard.
- Employment practices liability: While losing a key employee can certainly disrupt operations, employment practices liability insurance (EPLI) offers protection against employment-related claims, such as wrongful termination or discrimination. Instead of scrambling to defend your nonprofit in court, EPLI helps shield your organization from these legal risks, giving you peace of mind in navigating these particular workplace challenges.
- Business interruption: Many nonprofits don’t think about what would happen if operations had to stop. Proactively securing business interruption insurance means that if disaster strikes, you can stay afloat without losing momentum.
- Cybersecurity risks: Hope for All learned this lesson the hard way when a cyber-attack compromised donor data. Ensuring cybersecurity measures are in place from the start can prevent breaches that not only disrupt operations but also erode trust.
By partnering with experts like Hub International, nonprofits can proactively address these traditional risks with insurance solutions tailored to their needs, ensuring that when the unexpected happens, they are already protected.
2. Nonprofit-Specific Operational Risks
Just as traditional risks need to be handled before they become problems, nonprofit-specific operational risks require the same proactive approach. Depending on your nonprofit’s operations, the following can be key areas to assess in advance:
- Revenue risk: Hope for All had always relied heavily on program revenue, grants, and donations, which can fluctuate unexpectedly. A proactive risk assessment helps nonprofits evaluate how stable their income sources are, preparing contingency plans for lean times rather than scrambling when funds dry up.
- Employment retention risk: When a key employee left unexpectedly, Hope for All found themselves having to move quickly to recover. Succession planning and proactive retention strategies help ensure that your nonprofit remains resilient, even when faced with turnover.
- Fiduciary risk: Financial transparency is critical to maintaining trust with stakeholders and protecting board members. Nonprofits that proactively implement sound accounting practices and conduct regular audits are better positioned to avoid fiduciary risks than those reacting to financial missteps after the fact.
- Acts of God: The pandemic was a stark reminder that nonprofits must plan for the unexpected. Hope for All was caught off guard by their reliance on in-person events, but other organizations can proactively assess how external disruptions might impact their work—and plan accordingly.
- Legislative risk: Laws and regulations affecting nonprofits can change rapidly, and those who aren’t prepared can find themselves in challenging positions. Staying ahead of potential legislative shifts allows nonprofits to adapt smoothly, rather than reacting to changes that negatively impact their operations.
Partnering with an experienced team like Chazin & Company allows your nonprofit to take a proactive approach to managing financial risks. Instead of responding to issues as they come up, you’ll be building resilience and positioning your organization for long-term success.
3. Planning for What Comes Next
An important part of building that resilience involves creating comprehensive disaster recovery plans and establishing adequate financial reserves. These measures ensure that your nonprofit can withstand both expected and unexpected disruptions—whether it’s a temporary loss of income, an operational setback, or a larger crisis. By having a disaster recovery plan in place and financial reserves at the ready, you equip your organization to navigate through challenging times without compromising your mission.
Stay tuned for our upcoming blogs, where we’ll dive deeper into these essential topics.
Conclusion
Hope for All’s experience highlights the value of taking time to assess risks before they arise. By being more prepared, organizations can better navigate unexpected changes while continuing to make progress in delivering on their mission.
A comprehensive risk assessment allows nonprofits to prepare for challenges before they become full-blown crises. Whether it’s safeguarding against traditional risks through Hub International’s tailored insurance solutions or addressing nonprofit-specific operational vulnerabilities with Chazin & Company, acting proactively can protect your organization from the unexpected.
Don’t wait until something goes wrong. Start building resilience today—so your nonprofit can continue focusing on what truly matters: making a difference.
Chazin & Company
With over 19 years working exclusively with nonprofits, we pride ourselves in having a unique understanding of nonprofit accounting needs. We believe that nonprofits deserve personalized, quality service and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual and customized solution that is not only cost-effective but also strengthens your accounting function. We offer a team of industry experts at your disposal to provide advice, leading technology, and to supplement existing staff to improve efficiency and compliance.