As many of us are aware, our world is changing and there seems to be a systematic dismantling of the structures we have all relied on to support our society including the nonprofit sector. So many nonprofits have been giving standard fundraising answers on their grant applications about their sustainability plans. But with Guide Star’s (guidestar.org) recently released a report on the financial health of the sector, entitled – The Financial Health of the United States Nonprofit Sector – Facts and Observations (January 2018) those past grant proposal answers about nonprofit sustainability and financial health will no longer suffice. Crisis mitigation strategies are needed for the nonprofit sector.
This report’s analysis shows just how fragile the nation’s nonprofits really are especially the smaller ones:
- 7-8% are technically insolvent with liabilities exceeding assets
- 30% face potential liquidity issues with minimal cash reserves and/or short-term assets less than short-term liabilities
- 30% have lost money over the last three years
- ~50% have less than one month of operating reserves
The report states, “The scale of the problem is vast. In fact, just restoring currently insolvent nonprofits to solvency would require an injection of $40 to $50 billion dollars. Changes to the federal tax code may exacerbate the issue, by changing charitable donations and/or by increasing the likelihood of future pressure on federal budgets for human services.”
The report only analyzes the financial situation. Of course, there is more to this picture. For years, since the Reagan Administration, there has been the assumption that the nonprofit sector could take on more and more of the care and support of our most vulnerable citizens and communities leaving government budgets to focus on more important matters like national security. It was around that time that Foundation and Corporate Funders have taken a strategy of only funding programmatic cost. This has caused nonprofit organizations, especially small community groups to have very flat organizational structures. There was less and less funding for positions like associate directors and other middle management positions. The impact is that as the baby boomers are retiring, there is a challenge with the leadership pipeline. Program managers are not typically involved with the board or fund raising or strategy development for the organization. Then to complicate matters even more is the sheer volume of need among our citizens for critical helping services in every community across the nation, thanks to the gutting of inner cities in the 60s, school integration of the 70s, the crack and AIDS epidemics of the 80s, the economic downturn of the 90s up until today as the full implementation of the knowledge economy has reduced jobs through automation and outsourcing that will never come back no matter what politicians tell us. Nonprofit organizations have been working to build their capacity on the fly with insufficient funding and the kindness of a few foundations who focus on capacity building. And as we enter 2018, the changes to government funding, programmatic focus, new laws and rules guarantee that the need for the nonprofit sectors services will grow and their funding will be more and more tenuous. And still nonprofits are making an incredible difference in every community in the US and abroad with slim resources and committed staff and volunteers. And this in and of itself is likely to be unsustainable without some shift or change in the mechanisms of how nonprofits are funded.
In the meantime, I agree with the Report as it suggests that nonprofit organizations do some risk mitigation including scenario planning. MKM Management Consulting has served nonprofits with their strategic planning needs for over 30 years. This year, in support of our nonprofit clients and the critical services they provide in our communities, we are offering scenario planning segment to our strategic planning services and our one-day planning retreat in support of them getting a handle on their risk tolerance and creating mitigation strategies for survival.