July 22, 2018
 
Survey: Nonprofits Seek Growth, But May Lack Financial Ability

June 22, 2018 — Program expansion is on the two-year horizon for nearly half of nonprofits, yet many organizations may lack the financial strength to fuel sustainable growth, a newly completed national benchmarking survey has found.

Managing growth registers as a concern for two in five nonprofits, but the sector overall could be underestimating the road ahead, according to survey completed by The BDO Institute for Nonprofit Excellence.

Among key findings:
  • Nonprofits are not prioritizing liquidity—a crucial safety net to weather any funding disruptions.

    More than half (51%) of nonprofits have less than six months of operating reserves. While the right level of operating reserves varies by organization size and sector, establishing a six-month supply of operating reserves is best practice overall, the report noted.

    Despite this gap, executives remain unfazed by low liquidity levels: 34% say maintaining adequate liquidity poses no challenge, and 40% say it is a low-level challenge.

  • About one in five nonprofits could be at risk of falling into the starvation cycle: underfunding necessary infrastructure—new technology, employee training, and fundraising expenses—in favor of high programmatic spending.

    These organizations spend between 90% – 99% of expenditures on program-related activities, compared to the average nonprofit that allocates 77%.

  • Nonprofits are still held to unrealistic standards for overhead spending.

    About three in five nonprofits say rising overhead costs is a moderate-to-high level challenge, and pressure to minimize overhead costs is likely driving high program-related spending at the expense of investment in infrastructure.

  • Nonprofits could be underestimating long-term financial challenges.

    While nearly half (46%) of nonprofits say declining revenue or funding is a high-to-moderate level challenge, more than one-third of nonprofits say maintaining adequate liquidity poses no challenge, and 40% rank it as a low-level challenge.
Other top findings include:

Mergers & Collaboration

  • Nonprofits could be dismissing mergers or strategic partnerships as an avenue to achieving financial sustainability too quickly. Nearly four in five nonprofits say merging with a similar nonprofit is not at all likely.

  • Collaboration is not at the forefront of nonprofit’s future plans, but more than one-third of nonprofits say it is somewhat likely or very likely they will enter into a strategic partnership with a similar nonprofit in the next two years.

Human Resources

  • Compensation remains the number one employee satisfaction issue: 59% consider it a moderate-to-high level challenge.

  • Recruiting and retaining nonprofit staff and employees are a high or moderate challenge for three in five nonprofit organizations.

Technology

  • A nonprofit’s ability to keep pace with changing technology is a growing employee satisfaction issue: About three in five nonprofits say it is a moderate-to-high level challenge.

  • Cybersecurity and changing technology are among the top challenges for nonprofit boards, identified by 54% and 48% as a moderate-to-high level challenge, respectively.

Scope & Impact

  • Tax reform and accounting changes (lease accounting, revenue recognition, changes to the presentation of nonprofit financial statements) are top of mind. More than two in five nonprofits consider the time and effort required to deal with government regulations and legislative changes a moderate-to-high challenge.
The survey was based on input from 100 nonprofit organizations across a variety of sectors, including health and human services, higher education, public charities, and private and community foundations.

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