“It’s been a rugged three years for Minnesota’s nonprofits, years characterized by economic instability, management uncertainties, and fundamental shifts in a once-familiar external landscape. Still reeling from significant financial downturns, many nonprofits have used the last few years to take a long, hard look at their internal capacities and financial requirements.”
Does this sound about right to you? It’s the opening paragraph of a research report on the financial health of Minnesota’s nonprofits. From 1994.
I dug this report out last week after reading the summary of the State of the Nonprofit Sector: 2015 Survey conducted by Nonprofit Finance Fund. This is NFF’s seventh annual survey, initiated after the 2008 financial crisis, and is worth your time to read the report and dig into the data.
2015 State of the Sector Survey
In NFF’s 2015 report, over three-quarters of nonprofits reported a surplus or break even in the previous year, indicating that the financial state of the sector has improved since the first survey in 2009. The reports each year have been a mix of dire circumstances and hopeful and positive progress. One recurring message has been nonprofits reporting that the demand for their services exceeds their resources or capacity to provide them. Uncertainty about funding, especially from government sources, looms large. The three top challenges reported in 2015 are:
- Achieving long-term financial sustainability
- Staff retention and competitive wages
- Raising funds that cover full costs
As I read through the narrative, pull quotes and charts, I was struck by the echoes from the 1994 report from Minnesota. One example: the foreword of the 2015 “State of the Sector” report concludes, “Many organizations have stumbled out of crisis looking to make the necessary investments to secure their long-term futures. And it is a hard road ahead.” That rang a 20-year old bell.
Historical survey reports from Minnesota
The 1994 report cited above was one of three research studies published by Minnesota Nonprofits Assistance Fund (we shortened our name later.) The first study was conducted in 1990, then repeated in 1994 and 2000. These were conducted before easy online survey technology, using mailed paper surveys, with about 265 responses for each report. The research combined financial data and qualitative survey questions. A quick summary of the reports:
The Financial Health of Minnesota’s Nonprofits [1990]
Overall, the study found that nonprofits were OK but not great. While respondents reported that surpluses were essential for stable financial management, deficits and breakeven financial results were common. Only 21 percent reported that their organizations were “financially healthy and not vulnerable at present,” and another 43 percent reported that they “have been financially healthy but felt vulnerable for the future.”
The largest sources of revenue were government and program service fees, but nonprofits predicted reductions of at least 10 percent from government. General operating support was the greatest unmet funding need.
In 1990, the most significant ongoing problems from the survey:
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- Growing demand for service without the resources to support program growth
- Shortage of income to meet expenses
- Shrinking public money to support programs
Refocusing on Community: Report on the Financial Health of Minnesota’s Nonprofits [1994]
The report is more optimistic than the 1990 survey, with 32 percent responding that they felt financially healthy, and 34 percent that they felt healthy at the time but vulnerable for the future. More organizations reported surplus results. While 63 percent of reported income was from government and program service fees, there was a general prediction of major reductions from government sources.
In 1994, nonprofits reported these three most significant ongoing problems:
- Growing service demand without corresponding resources
- Shrinking public money to support programs
- Competition for resources from other nonprofits
From Spreadsheets to Streetcorners: Report on the Financial Health of Minnesota’s Nonprofits [2000]
This report was more optimistic than ever, with 45 percent responding that their organizations were financially healthy, and 35 percent that they were healthy but felt vulnerable looking to the future. Nearly three-quarters reported a surplus in their previous fiscal year. Contrary to the predictions in 1990 and 1994, the percent of income from government and program services fees was at the same level.
In 2000, the three most significant ongoing problems were:
- Growing service demand without corresponding resources
- Inability to hire and/or retain qualified and motivated staff
- Competition for resources from other nonprofits
Sound Familiar?
Twenty and twenty-five years later, and the themes are the same. Demand for services exceeds the capacity of individual nonprofits. Government funding is difficult to obtain and manage. Organizations feel vulnerable or unsustainable. What does this tell us? Is the nonprofit sector in permanent financial stress, or is this an entrenched message that we tell ourselves and each other? Is it the role of individual nonprofits to meet every community need? Are we even asking the right questions? A few obvious conclusions after reading these historical and more recent reports: Volatility is nothing new; there is no “normal”; and adaptability has always been at the core of nonprofit strategy and leadership.
There is a hopeful theme, too, because the staying power and resilience of the sector is also a recurring message reflected in the conclusions of each report.
- 1994: “Nonprofits positioned for the future will be flexible, take change in stride and build organizational cultures that are ready for change. Most important, results-oriented nonprofits will view change as the constant and their programs and activities as the variable in planning for future mission accomplishment.” (MNAF report)
- 1999: “More than ever before, nonprofits must creatively respond to their communities without losing sight of their mission or their ability to sustain that mission.” (MNAF report)
- 2015: “Nonprofits are navigating a time of immense need and change, while pursuing ways to build long-term sustainability and viability. Nonprofits continue to prove their ability to survive and thrive in tough conditions. They are working to ensure their ability to meet community needs now and in the years to come.” (NFF State of the Nonprofit Sector)
And so we will, for the years—and decades—to come.
Kate Barr is executive director of the Nonprofit Assistance Fund. She believes that every nonprofit financial question relates to strategy, structure and mission impact. She enjoys interpreting financial information to find stories numbers can tell. She loves writing, teaching, and talking with interesting people.
This feature was originally published as a blog post at the Nonprofits Assistance Fund website. It is reproduced here with permission.
