• This effort, and the report are a great service to the sector on the part of the authors. Thanks to NPQ for sharing it.

    Some quick comments:

    I think it’s clear that the effective insolvency rate of nonprofits is much higher than the ostensible rate. Every time my clients (in turnaround interim management) have been close enough to the margin that we’ve need to assess the liquidated value of our assets the balance sheet turns south by a large margin. I’ve seen book net assets of 50% over liabilities turn into negative net worth. The liabilities tend to be reasonably accurate in my experience, unless there’s a big unbooked contingent liability that has prompted the crisis. However, many nonprofits have uncollectable A/P and overstated inventory on the books. Almost invariably the liquidated value of depreciable assets and of inventory is far below the book value. When an organization finds itself in trouble the GAAP value of assets becomes close to irrelevant.

    The margin by which private philanthropy under funds G&A, R&D and the building of reserves is terrible. That of government is utter malfeasance. Not a new topic but thanks to the authors for underlining it in their matter of fact “it’s about the numbers” way.

    I have been on an intermittent mission, for some time, to find a way to systematically compare mission reward against organizational risk. Because reward is so often in a different coin than risk (which can usually be dollar denominated in some credible way) I find that risk assessments quick turn into risk avoidance and undermine constructive conversations about risk/reward. If any reader knows of a model that helps address this, I’d love to learn of it ([email protected]).

  • Elizabeth Boris

    Useful study with findings that resonate with many others. But, individual financially weak nonprofits will not be able to take the steps outlined in this report without funding. I believe that we must develop and fund a series of community-level solutions. There are many examples around the country that could be put in place to strengthen a community’s nonprofits. There could be nonprofit hubs with low rent, shared back office and administrative functions (accounting, HR, IT, etc.). There could be foundation guaranteed, nonprofit “banks” that provide low-cost cash-flow loans, capital investments, scaling or impact investments, etc. There could be “talent banks” of experienced fundraisers, IT consultants, performance and risk management experts, etc. who are funded to help nonprofits build their capacity or who do so pro-bono with the support of their corporations. There could be educational programs for CEOs, Boards, managers, program staff, with scholarships for the employees and for the organization that sends them to training. There is a great deal of nonprofit capacity that needs to be built and it needs to be at community scale to make a real difference. Those communities that do it well should be held up as case studies for the rest of us.