2023 Financial Trends for NPOs in Canada: The Economy and Government

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2023 Financial Trends for NPOs in Canada: The Economy and Government

The first in a three part series on financial trends for NPOs in Canada, this post tackles how the economy and government funding are impacting nonprofit organizations. 

Both the economy and government policies can significantly impact nonprofit organizations (NPOs). Without a doubt, economic factors will impact organizations differently depending on the organization's location, size, specific mission, and service delivery model.  

Economic conditions and government policies play a crucial role in the operation of nonprofit organizations in Canada. During economic downturns, nonprofits may face reduced donations and funding as individuals and businesses have less disposable income to contribute, while simultaneously experiencing increased demand for their services. Government policies, such as changes in funding programs, tax incentives for charitable giving, and regulatory requirements, can significantly impact the financial health and operational capacity of nonprofits. For instance, alterations to tax credits for donors can influence donation levels, and new regulations may increase administrative burdens. Consequently, nonprofits must stay attuned to economic trends and policy developments to adapt and sustain their missions effectively.

The goal of this post is to encourage leaders of NPOs to think about the changing landscape and the potential risks and opportunities for their NPO.  

Overall Economic Slowdown

The implications of an economic slowdown are complex and multi-faceted.  

Some specific ongoing considerations include:

1. Stock market volatility

The Canadian stock market took a nosedive in late 2018 on fears of a global economic slowdown. Still, after a period of volatility in late 2018, the Canadian stock market, as measured by the S&P/TSX Composite Index, reached new all-time highs in 2022 and then declined considerably from those highs.  

A strong stock market can increase the value of investments held by nonprofits, allowing them to generate more income through dividends or capital gains. This can provide additional funding for their operations and help NPOs achieve their mission. That said, a volatile or declining stock market can reduce the value of nonprofit investments and decrease their available funding, making it more challenging for organizations to meet their financial obligations and achieve their goals. A volatile stock market may leave donors feeling less financially secure, and consequently, donations may decline. A declining stock market can also reduce overall giving, considering that donations of securities have become a common donation vehicle in Canada.  

Of course, this will have a more significant impact on NPOs that hold large portfolios of equities.

2. Changes in the Real Estate market

The housing market in Vancouver and Toronto has cooled off. After several years of strong growth, the Canadian housing market as a whole saw a slowdown in 2018 due in part to changes in government regulations and increased interest rates. This slowdown was particularly pronounced in the Vancouver and Toronto markets, which had previously been among the hottest in the country. Recently, prices in these cities have stabilized and sometimes declined, leading to a more balanced market.

Housing prices can have diverse impacts on an NPO. For one, high prices can drive talent out, and many NPOs provide hands-on services that cannot be delivered remotely. In addition, NPOs that provide housing and shelter may not be able to meet their objectives as market prices increase. On the other hand, declining real estate values, like declining stock markets, can lead to lower donations and endowments or decreased returns that impact revenues and, consequently, the ability to deliver services.  

Since 2020, the Canadian real estate market has experienced significant fluctuations influenced by economic conditions, government policies, and the COVID-19 pandemic. In the early months of the pandemic, there was uncertainty, but the market quickly rebounded due to historically low interest rates and a shift in buyer preferences toward larger homes suitable for remote work. This led to a surge in demand, particularly for single-family homes in suburban and rural areas, driving housing prices to record highs throughout 2020 and 2021.

3. The lasting impacts of global pandemic

COVID-19 launched us into a period of long-lasting uncertainty. The rapid spread of the virus and subsequent lockdowns led to widespread job losses and economic disruptions, which have had long-lasting effects on many individuals and organizations. The COVID-19 pandemic highlighted existing inequalities and created new ones, and its impact will likely be felt for some time.

In addition to the direct effects the pandemic has already had, the ongoing unpredictability surrounding the course of the pandemic, the availability and distribution of vaccines, and the timing and nature of government response measures have all contributed to a sense of uncertainty that is likely to persist for some time.

While the world has made significant progress in controlling the spread of COVID-19 and restarting economic activity, it has significantly impacted how we work. There have been a number of “forced” changes, many of which are likely here to stay. Whether that be a shift from in-person to virtual events, in-office to remote work,  or just how employers handle health issues in the workplace, it’s likely that COVID will leave its mark well into the future. 

NPOs can take advantage of many of these opportunities; from remote work to greater acceptance of technology, new opportunities exist to deliver services in a more cost-effective and efficient way. On the other hand, depending on the nature of the NPO, these changes may lead to the opposite if face-to-face service delivery cannot be replaced.  

The Freelance/Outsourcing Economy

Many nonprofits outsource more to reduce costs, increase efficiency, and access specialized skills and expertise in non-core functions. Still, outsourcing can be both positive and negative for nonprofit organizations. On the positive side, outsourcing certain non-core functions like administrative tasks, bookkeeping and back office functions, or IT support makes great sense. It can allow NPOs to save money and focus resources on the folks that are core to delivering on their mission. 

However, outsourcing core roles and functions can create cultural and communication challenges if the organization relies on staff unfamiliar with or “bought into” the organization's values and goals. 

Ultimately, the impact of outsourcing on nonprofit organizations will depend on the unique circumstances and how organizations plan for, communicate, and manage the process.

Increasing cost of doing business 

As costs increase, it can be challenging for nonprofits to stay within budget, leading to reduced services, staff cuts, and other setbacks. Where for-profit companies can more easily increase prices or shave out unnecessary expenses, organizations that receive donations as their main source of funding get squeezed as households struggle to keep up with rising costs. This is exacerbated by rising costs associated with salaries, rent, utilities, and other expenses. This can put vital services delivered to communities at risk and limit expansion opportunities.

Increase in competition for donations from individuals and corporations

It’s well known that the nonprofit sector in Canada is becoming more competitive as the number of organizations competing for donations continues to grow. This has made it even more important for nonprofits to differentiate themselves and clearly communicate their value proposition to donors.

There are several reasons for the increase in competition for donations from individuals and corporations:

  • There are more nonprofits overall: The number of nonprofits in Canada has increased in recent years, leading to more competition for donor dollars.
  • More awareness and activism: Social media and other digital channels have made it easier for people and organizations to learn about and support the causes they care about.
  • Shifting donor demographics: As younger generations get more involved in philanthropy, they bring different points of view and preferences for how they want to get involved and support causes.
  • Economic factors: Economic uncertainty, including the pandemic, leads to fluctuations in funding and donations, often increasing competition for a smaller pool of resources.
  • Political/Legal factors: Changes in government regulations and tax laws can affect the amount and types of donations available, leading to increased competition for donations.

Overall, the increase in competition for donations mirrors the changing landscape of philanthropy and the growing importance of the nonprofit sector in Canada.

Increased competition for donations can have the following effects:

  • More pressure on nonprofits to communicate their value proposition and differentiate themselves from other organizations.
  • A focus on more strategic fundraising practices to stay ahead of the competition.
  • A focus on building stronger relationships with donors to secure longer-term relationships.
  • Innovative and more creative approaches to fundraising that enable organizations to stand out.
  • A stronger online presence and social media strategy

Potential Decrease in Government Funding

The Canadian government has gone on record with their commitment to reducing the Canadian debt-to-GDP ratio. Mounting pandemic deficits “must be reduced” according to Minister of Finance Chrystia Freeland. Undoubtedly, this will impact funding for nonprofits, although the details are not yet clear.

Looking ahead, the biggest challenge for the nonprofit sector in Canada is likely to be the continued uncertainty around government funding. With many social programs facing possible cuts, nonprofits may need to find other sources of revenue to maintain their operations.

NPOs can also be impacted by how government funding changes abroad. The new tax laws in the United States could hurt Canadian nonprofits that rely on American donations. Furthermore, a change in political administration may lead to greater uncertainty in funding or outright decreases in government spending. 

Increased government regulation and scrutiny

Canadian nonprofits are under increased scrutiny from government. This has led to more regulations, a greater compliance burden, and increased expectations around transparency. The good news is that this added scrutiny leads to a better understanding of the important role that NPOs play in our society. As a result, they are more widely recognized as key players in solving social challenges.

Conclusion

A recent Ipsos poll suggests that 22% of Canadians are “completely out of money” and can no longer pay more for household necessities. To make matters worse, another 32% say that when it comes to inflation and the rising cost of household necessities (food, clothing, transportation and shelter), they would have to make major changes to how they spend their money to pay for increased costs. That means that 54% of Canadians cannot handle additional price increases.

So if one thing is crystal clear in all of this, it’s that more and more Canadians will be turning to the nonprofit sector for support.

Need help keeping your books up to date for better cash flow management and cash visibility? Enkel can help! Contact us to learn more about our nonprofit bookkeeping services.

Omar Visram
About Omar Visram
Omar Visram is the Co-founder and Head of Growth at Enkel Backoffice Solutions Inc. Headquartered in Vancouver, Enkel provides bookkeeping, payroll, accounts payable and accounts receivable services to over 300 organizations Canada-wide.