Survey Suggests Human Service Agencies Have Unworkable Formulas

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April 2, 2012; Source: Nonprofit Finance Fund

The Nonprofit Finance Fund’s (NFF) most recent survey holds little in terms of surprises, although it may make some of you feel a little less alone in your organization’s financial and service issues. According to NFF, 85 percent of nonprofits responding to the survey experienced an increase in the demand for service and more expect increases in demand next year.

But that demand was not met in 58 percent of human service organizations in 2011 and a self-reported 60 percent won’t be able to meet 2012 demand. Almost 70 percent of these agencies receive state and local funding and more than half receive federal funding. The organizations who received federal funding said that it covered the full cost of services in only 21% of cases and those receiving state funding said that those contracts covered full cost of services in only 25% of cases. Not much new here except that we are in an environment where demand is up and when you are taking a loss on every case, greater volume means greater losses and other money may be less available. The majority of those receiving public funding experience late payments and have had to use their own reserves to cover the gaps, but most also have less than three months of cash on hand.

Still, even in such a collectively experienced situation, just one out of five nonprofits feels comfortable talking with their funders about cash flow concerns and only six percent feel comfortable talking with funders about debt. This suggests that funders concerned about the health of local safety net organizations might want to get their heads out of the sand if they have not done so already, perhaps by insisting that government stop using nonprofit vendors as convenient lending institutions and possibly by providing gap funding or loans.

This kind of survey is rarely accompanied by commentary that shows how all of this really plays out in the trenches. Good for NFF for giving us a window into the courage and creativity of this sector in a series of mini-stories from respondents.

Many of these stories show organizations that have taken steps to change their financial model. We’d be interested in what you have done to manage in an environment where the revenue and demand do not align, or where you find that you need—for any reason—to significantly change your business plan. –Ruth McCambridge