The Nonprofit Funding Crisis: An Imperative for Building Strong Boards

Nonprofit organizations have always struggled to raise money to serve important missions--regionally, nationally, and globally. New data from NYC and Washington, DC show just how close to the edge nonprofits have been living, even before the recession. Add to that the past year's reductions in both government and private funding, and nonprofits are truly in crisis.

Nonprofit boards of directors, who are ultimately responsible for the organizations, must take this information seriously, especially with regard to who is on the board and the role of the board. And board-matching services--increasingly popular in a number of communities--need to pay heed as they consider the qualifications of the candidates they introduce to boards.

Based on a study by the Urban Institute, conducted among 2,658 DC nonprofits, 57 percent had reserves insufficient to cover three months of expenses, even before the recession, "a level that many experts consider the minimum necessary for financial stability." Furthermore, larger organizations, with budgets over $5 million, had smaller reserves. A NYC survey just released by Baruch College and the Human Services Council showed that 73 percent of NYC's social services providers either had no reserves or lines of credit or had exhausted them.

I have met with the boards of many social services organizations throughout the country where the nonprofit is almost exclusively reliant on government funding--organizations with budgets from $1 million to $80 million--where government funds account for up to 98% of revenues. It is important to understand that government funds, although vital, are often paid to the nonprofit only after services are provided, do not cover all infrastructure expenses, do not cover technology, nor research and development or program innovation, nor enough funding for competitive salaries. Also understand that government shifts its program priorities from year to year, and often reduces its funding.

So, if you are running an $80 million enterprise at multiple sites, with a few hundred employees, and you are 95% reliant on government grants and contracts, then you will have to close programs and start new ones from one year to the next (as government shifts its interests), lose employees and have to replace them often (because salaries are not competitive, and programs are shifting), and you won't have enough funds for quality infrastructure or computers to track data. Not unless your budget has a mix of revenues that includes a meaningful amount of philanthropy from corporations, foundations, and individuals, and also fees for services (or nonprofit revenue ventures).

That means that there is only one way to build a quality organization, pay competitive salaries, provide core programs that are mission-oriented on a continuous basis, and invest in developing and offering innovative programs. That one way is to build a board of highly committed, talented, and generous board members who work in partnership with an excellent and enterprising CEO (hired by the board) and his/her senior team to build and achieve a strong revenue model that includes philanthropy and fees for services.

There are in fact organizations that are growing and expanding thoughtfully and strategically even in this economy... some that are even taking on responsibility for organizations that are faltering.

Nonetheless, even an excellent CEO and the most committed and generous board might not always be able to ensure top revenues in this tough environment. They can, however, ensure that the board is fully engaged and highly supportive (including living up to a "statement of board member expectations"), continue to seek new talent for the board as needed, keep the organization very focused, ensure high quality programs, continue to invest in and support excellent staff, stay close to funders and supporters, explore partnerships and collaborations where opportunities might be leveraged, ensure that funds are managed carefully, and establish and maintain a comfortable cash reserve.

If you are on a nonprofit board, make sure that each and every person who is on the board or whom you recruit fulfills a clearly defined role in helping the board in its work to create and accomplish a vibrant strategy and robust revenue model. Also make sure that your board uses its time productively in meetings and in between meetings. And that everyone gives generously and raises funds ambitiously.

If you are considering joining a board, make sure you understand what the organization needs from you, and that you can and will provide it.

And if you are board matching, make sure you understand each organization's revenue model, and each candidate's interests and qualifications, so that any candidate you introduce has the ability and capacity to contribute what is needed to advance the organization productively and meaningfully.

Nonprofits are serious business. We depend on their services, and they are vital to economic development.

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  • Frank Burns

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