The nonprofit sector just can’t seem to catch a break lately. Just as we thought things were picking up again with news that 45% of nonprofits plan to add jobs this year, and only 7% plan to scale back in staffing, there’s another survey out that will temper optimism about nonprofits’ sustainability.
More demand for nonprofit services, but supply can’t catch up
Reaching out to over 5,000 organizations, the Nonprofit Finance Fund found that 80% of U.S. nonprofits experienced greater demand for their services in the past year, but as much as 56% were unable to meet those demands. Since the majority of nonprofits surveyed primarily provide services to low income communities, there are at least two things we can infer from these figures: 1) that the economic recovery in the U.S. is still not reaching people in lower income brackets; and 2) that people are increasingly looking to nonprofits for support because other forms of institutional assistance are insufficient or not reaching the people who need it most.
Most of the nonprofits surveyed in the study agreed that the inability to meet demand was rooted in a greater funding issue. That’s not surprising, but a closer look at nonprofits’ fiscal health reveals just how precarious the situation is for most nonprofits. 41% of nonprofits said that achieving financial sustainability was their top challenge, 21% said that they had trouble diversifying funds, and 16% said raising enough to cover all expenses was a struggle. Over a third of nonprofits said they had less than three months of cash readily available. For too many nonprofits, keeping their doors open remains a challenge — much less expanding programs to meet needs.
Nonprofits have done their best to respond to funding shortfalls. The top five responses from nonprofits, according to the survey, are to cut costs, develop reserves to manage government funding (a major source for many of the nonprofits surveyed), change their business models, take on debt, and gather data on what works. Some of these responses are welcome management exercises—if a nonprofit can adapt its business model to generate its own revenue without compromising its program quality, that’s great. However, cutting costs can only get you so far, and a lot of these measures take a long time to implement when the need is now.
Metrics wanted, funding not guaranteed
So are philanthropists willing to step up and help the nonprofits doing important social work become more sustainable? From the perspective of the nonprofits, perhaps not. A little over half of the nonprofits surveyed said that they were able to have candid conversations about expanding their programs with their donors, but just 32% said they could openly discuss operational support. Only 20% said they could talk about multi-year funding, just 9% said they could discuss flexible capital for change or growth. Only 1% said they could to funders about paying off loans. 13% said they could not have any open dialogue with their funders.
This is startling, especially considering the growing pressure on nonprofits to deliver more than what their programs set out to do. In an age where financial documents and impact tracking are little more than a click away, regular reporting and monitoring are becoming de facto, if not already mandated. But these activities come with costs that are not always covered in program grants or by individual donations. Consider the example of evaluation metrics: It takes a lot of effort to develop metrics that meaningfully evaluate the correlation/causation between a nonprofit’s programs and change in beneficiaries’/clients’ lives. A good 70% of nonprofits said that at least half of their donors ask them to report back with metrics for their programs. However, 71% of nonprofits also said that donors rarely or never fund the costs associated with this request.
How can we expect so much from nonprofits and offer them so little support to carry out those expectations? It seems to me that there might be a disconnect between what donors want and what they are actually willing to fund. What are your thoughts?