Uncertainty Ahead for the Nonprofit Sector

Heading towards Uncertainty.” Credit: FollowYourNose

June 12, 2017; Nonprofit Standard Blog

In a recent survey, over half (52 percent) of more than 100 diverse nonprofit leaders reported apprehension regarding the ability to raise resources, and 40 percent were fearful their organization would lose a main revenue source. At the same time, 70 percent of these same organizations experienced a growth in revenue during their last fiscal year. Clearly, sector leaders are worried whether their organizations will continue to provide a strong safety net in the years to come. There’s nothing surprising in the results, despite the flaws inherent in the study design.

The BDO Institute for Nonprofit Excellence created the benchmark survey in collaboration with the NonProfit Times. The goal was to provide nonprofits with a gauge to compare their performance to other agencies, both comparable and dissimilar. The survey looked across a multiplicity of areas, including strategic planning, operations, revenue generation, human resources, and governance.

Data was collected from CFOs and executive directors of 105 agencies, with CFOs composing 60 percent of respondents. (We wonder how many respondents too small to have an identified CFO or similar officer were included in the survey sample.) The largest subset of the nonprofits surveyed were health and human service organizations, representing 36 percent; 34 percent described themselves as public charities. Twenty-nine percent of the organizations described their scope as regional, 25 percent reported international, another 25 as national, and the remaining local. The organizations surveyed had average annual revenue of $116.4 million and average assets of $266.9 million.

The survey sample is skewed in ways apart from the representation of CFOs in the respondent group. About 75 percent of nonprofits have revenues under $1 million, but only seven percent of organizations surveyed have revenues under $5 million. Readers are advised to look at the sector demographics cited in Giving USA’s 2017 Annual Report on Philanthropy for the Year 2016 and compare those breakdowns of revenue and sector support with the makeup of the 100 or so respondents to the BDO survey.

Given respondents’ revenue fears, it was not surprising 42 percent were apprehensive their organizations would be able to manage growth. Additionally, 42 percent had concerns centered on succession planning. Smaller organizations, with budgets under $25 million, in particular disproportionately shared these latter fears.

The top obstacle responding nonprofits report facing is the inability to adequately compensate staff, which can lead to recruitment and retention challenges. While half of organizations’ staffing expenses grew an average of three to four percent, eighteen percent reported no change. Due to budget constraints, many organizations have begun offering nonmonetary benefits to bridge the gap in compensation. Twenty-eight percent of organizations already offered flexible work options and 84 percent expected to provide it within the next two years. Additionally, 38 percent planned to offer telecommuting and remote work opportunities.

Funders’ demands also continue to challenge nonprofits. Over half of organizations (55 percent) reported a percentage of their funders required additional information this reporting cycle. Connected to the demand for additional transparency, 42 percent of organizations stated they needed to measure outcomes using multiple measurements.

Although nonprofits will continue to face uncertainty in revenue streams due to the elimination of federal revenue opportunities and decreases in local funding as many state governments struggle to balance their budgets, the sector remains resilient and optimistic. Fifty-five percent of organizations plan to roll out a new program. Additionally, given the many articles on mergers, it was also surprising that only seven percent plan to merge in the next two years.

We need more studies to answer the questions addressed in BDO’s effort, but we need more representative sampling, or at least better market segmentation and identification, when performing and reporting such studies.—Gayle Nelson and Michael Wyland