While many stories have been written about the struggles of businesses, few detail the hardships hitting the nonprofit sector.
Private donations to charities doubled from 1987 to 2007 but dropped 6 percent in 2008. Some charities, such as human service organizations, saw donations fall nearly 13 percent last year. Foundation endowments and giving are down across the board, and many state and municipal governments facing deficits are reducing spending on social programs.
Further compounding the problem is a general decrease in government spending. Many nonprofit organizations are facing a changing funding environment coupled with a rising need for services in the communities they serve. The past decade saw a proliferation of new nonprofits, increasing competition for an ever-shrinking pool of funds.
“Overall, nonprofits are being forced to re-examine their operations in order to continue fulfilling their missions or just to stay above water,” says James P. Martin, CMA, CIA, CFE, CFD, CFFA, managing director at Cendrowski Corporate Advisors.
Smart Business spoke with Martin about nonprofits and the challenges they’re facing.
How do nonprofits contribute to the economy?
For many years, the nonprofit sector reaped what seemed like an ever-increasing level of donations each year. Moreover, the threshold to establish a nonprofit was rather low. These two factors together allowed the number of IRS-registered nonprofits to double in the past 15 years. In fact, nearly 10 percent of all U.S. employees work for a nonprofit organization, although this number appears to be falling as nonprofits struggle in the current economic environment.
Significant organizational changes need to be made in order for many nonprofits to survive.
What issues do nonprofits face today?
Most nonprofits today realize that they must focus on maximizing the amount of funds received by grantees. In previous years, some nonprofits believed part of their mission was to employ people in the community, but this belief appears to be going by the wayside. More and more donors want to see their dollars go directly to the causes of their choice, not to overhead costs internal to the nonprofit itself.
This can cause issues for nonprofits that have suffered greatly from a downturn in donations. These organizations might possess an internal cost structure that, today, just isn’t sustainable.
Additionally, nonprofits are facing pressure to provide measurable proof that the services they provide have an impact on the communities and populations that they target. Donors and the general public want evidence that nonprofits are effectively and efficiently doing exactly what they set out to do. Checks and balances such as these are essential; however, it is causing nonprofits to spend more time and energy on accountability, which can take attention away from their main goals and mission.