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.
Do you see any differences in the struggles of large nonprofits and those of smaller ones?
Yes. I’d say that the economic headwinds have, in fact, widened the gap between the strongest nonprofits and those that are finding today’s operating environment difficult. Large nonprofits often have immense name recognition that keeps them going. Smaller nonprofits have to compete with millions of similarly sized organizations for a smaller pool of dollars, which is a difficult task in any environment.
How long will this pattern of decreased funding continue?
Unfortunately, it will probably continue for some time. It’s well known that charitable contributions fall in tandem with wages and earnings. However, it’s amazing how certain events can create a large outpouring of donations. The latest crisis in Haiti has created a tremendous influx of donations for many big-name nonprofits.
But, such crises, unfortunately, often have a reduced impact on smaller foundations and nonprofits. These foundations will likely have to wait a longer period of time before they see their donations rise again.
What strategies can you suggest for struggling nonprofits?
Many nonprofits today are examining potential mergers, in some cases combining entities with similar missions or, alternatively, dissimilar missions. Such mergers allow nonprofits to expand their mission, reach greater groups of individuals in need and help minimize organizational costs.
However, not all mergers go smoothly. Some nonprofits have experienced significant hardships in merging with other entities. It’s hard for nonprofits to combine their missions or to change course operationally. It is, nonetheless, a necessary part of being a nonprofit in today’s world.
What if a merger is out of the question?
If a merger is definitely out of line, nonprofits should consider spending the dollars they have on building name recognition within their communities, vocalizing their successes and providing visible services to the community.
Using this three-pronged strategy can help donors learn about the nonprofit, understand its mission and physically witness the benefits it provides. There’s nothing more compelling to donors than the ability to watch their donations have a direct impact on the community.
James P. Martin, CMA, CIA, CFE, CFD, CFFA, is a managing director of Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or email@example.com.