Nonprofit Finance Fund State Of The Sector 2012: A System Under Pressure

The Nonprofit Finance Fund (NFF) 2012 State of the Sector Survey fourth annual survey of nonprofits nationwide was released today, showing responses from 4,607 nonprofits. Nonprofits have been reporting a steady rise in demand for services over the course of the survey’s four years, with 85% reporting an increase in 2011, compared to 67% of nonprofits in 2009. Financially, however, the picture continues to decline. Only 43% of nonprofits have more than three months of cash reserves, and only 56% broke even at year end.

"The data show that this is a system that is increasingly under pressure, and it will crack," said Antony Bugg-Levine, who was named President and CEO of the Nonprofit Finance Fund (NFF) last fall. "Short term complacency masks structural problems heading towards a longer-term crisis." NFF is a highly innovative nonprofit organization that has pioneered new funding models to strengthen nonprofits and the sector since NFF was founded by Clara Miller in 1980.  

Funders and boards hold the reins.

Nonprofit funders and boards have the power to transform nonprofit organizations to become more financially and strategically effective and sustainable. Previous NFF study results showed this as well: "Investing in Nonprofits: Calling on Boards and Funders to Commit" in 2009, and "Nonprofit Finance Fund 2011 Survey: Engage Your Board Sooner." 

Yet NFF’s 2012 survey shows a backwards trend. The latest report indicates that only 41% of nonprofits engaged more closely with their boards, as compared to 51% last year, and 60% previously. Even worse, only 43% plan to engage more closely with their boards in the coming year, compared to 55% last year, and 60% previously. 

As to funders, according to the new survey, "like last year, organizations felt that funders were most willing to talk about program expansion (54%), while very few believed their funders were open to discussions on facility reserves (12%) or operating expenses (21%)." 

The way forward: Funders must invest in organizational vitality and effectiveness. 

  1. Focus your discussions with your grantees on what they are trying to achieve, their revenue model for short-term effectiveness and longer-term sustainability, core programs to achieve the greatest impact, how they’ll track and measure progress including a cost-benefit analysis, and staffing for success. 
  2. Require that organizations in which you invest have boards that are engaged and effective.
  3. Invest in building sustainable nonprofits, not simply funding appealingly shiny new programs.  It’s called philanthropic equity.
  4. Invest in expert strategy and board consulting and training. The for-profit sector depends on an abundance of such services for their vitality and effectiveness.

The way forward: Boards must take their roles seriously in advancing nonprofits. 

  1. Boards, understand what’s expected of you and how you can advance your organizations strategically and financially.
  2. Build your boards with people with the skills and expertise, and the diversity of backgrounds and perspectives that are required for each of your organizations.
  3. Expect board members to participate in board meetings and add value.
  4. Ensure that you have outstanding board and CEO leadership, and plan for dynamic leadership succession.
  5. Streamline the board structure and committees for effectiveness.
  6. Focus your agendas and the board’s work so that you are using your time to move the nonprofit towards its greater vision and in achieving the revenue model for success.
  7. Consider strategic alliances with other organizations if that’s in the best interests of the communities you serve.

"We're at a crossroads"

"We fund this NFF survey because it's valuable to us as grantmakers, but we also want to help inform the broader field," said Kerry Sullivan, president of Bank of America Charitable Foundation, in a private interview with me. 

According to Sullivan, the survey results validate the Bank of America Charitable Foundation's decision to increase and target our funding on housing, jobs, and hunger to help low and moderate income communities that have been hardest hit by the economic downturn.  "The survey affirms that the nonprofits serving these communities are the most stressed.  And since the health of America is tied to the health of our company, then we must leverage our philanthropy, volunteers, lending and investing accordingly."

"The survey results confirm that we're at a crossroads," Sullivan added. "We in the philanthropic sector need to do things differently. We need to have more flexible, transparent, and honest conversations with grantees in order to drive to bettter impacts."

The NFF survey results show what is needed for a better future. Boards and funders, let’s work towards a better future for our communities and our world.

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