Study: Nonprofits To Expand To Survive

July 12, 2017       Andy Segedin      

More than three-quarters (76 percent) of nonprofits are at least somewhat likely to expand fundraising efforts during the next 12 to 18 months – a product of a growing to desire to not make like an Annie Hall shark and die by not moving forward.

A whopping 84 percent anticipate seeking out new grant funding opportunities while organizations are at least somewhat likely to pursue partnerships with other organizations (72 percent), provide new services that will bring in new revenue (69 percent), and engage in corporate sponsorship (67 percent).

“Nonprofit Finance Study – Managing Growth,” conducted by nonprofit and association software firm Abila, depicts a sector full of organizational leaders looking to beef up in a variety of ways. “Growth” is defined anecdotally in the survey as expanded revenue, staffing, programming, or the like – but is not broken down statistically.

Nearly all (98 percent) of the study’s 301 responding financial professionals stated that growth as an organization is at least somewhat important – including 81 percent who define it as very or extremely important. Four out of five (80 percent) of representatives expect for their organizations to grow to some extent in the next 12 to 18 months while only 5 percent expect some level of contraction.

If the grass is greener on the larger side, it primarily has to do with organizational perceptions at the supporter, board, and employee level. Nearly half of respondents (44 percent) said that organizational growth will be good for organizational relationships with major funders while relationships with the organizational board (38 percent) and employee morale (33 percent) are also seen as benefits.

This desire to get bigger stems back to the recession, according to Justin Morrow, co-author of the study. After a few years of decreased funding, organizational leaders came to the realization that they needed to diversify for their organizations to grow. Now several years into recovery, organizations are at a crossroads. Organization leaders are optimistic, but they are also seeking revenue streams and launching programs that are completely new to them.

“They are being more proactive from lessons from the Great Recession,” Morrow said. “You can’t count on what happened last year. You have to be more proactive.”

Morrow predicts that the number of organizations will continue to increase for the next decade, it being easier to establish a nonprofit now than it was at the turn of the century. Tools such as social media and online fundraising platforms are breaking down barriers that existed years ago. Leaders at small and medium-sized organizations thus see plenty of runway ahead of them while those atop large organizations probably expect to grow, Morrow said, but will see more competition than before – potentially leading to more partnerships and mergers. One in seven (14 percent) of study respondents said that it was at least somewhat likely for their organization to merge or acquire another organization.

Ambition to expand is also met with some concerns about challenges that might follow. Seven out of 10 (70 percent) respondents reported that expansion would be a moderate or major challenge from a budgeting perspective while training new staff (65 percent), ensuring compliance around new staff (62 percent), and growing sustainably (58 percent) are other concerns.

Risk management is another consideration with 62 percent of respondents stating that they believe managing risk will grow harder as their organizations grow – just 12 percent believing that it will become easier. One in three (33 percent) believe that growing opens the organization up to much or somewhat greater risk of fraud or accusations of fraud.

In both cases, fears of risk and fraud grow with the size of the organization. Concerns of managing greater risk is shared by 54 percent of respondents in offices of fewer than 50 employees, 65 percent of respondents in offices of 50 to 500 employees, and 75 percent of those in offices with 500 or more employees. Similarly, a quarter (25 percent) of respondents in organizations with less than $10 million in annual revenue believe that the risk of fraud is somewhat or greatly increased by expansion. That figure jumps up to 42 percent among those in organizations with greater than $10 million in annual revenue.

Morrow predicts more focus on risk management and rolling budgets in the years to come. Risk management has been a weak suit that those in the sector have become increasingly adept at as competition increases and professionals in the for-profit space enter the nonprofit arena. Confidence was high among respondents with 90 percent at least somewhat confident that their organizations will be able to manage risk as they grow and 94 percent at least somewhat confident that their organizations will be able to comply with regulations.

Other findings from the report include:

* Nearly two out of three (65 percent) of respondents are at least somewhat confident that they will receive the grant funding that their organizations will need during fiscal year 2018 – including 10 percent that are extremely confident. One in five (20 percent) are at least somewhat concerned that they will not receive necessary funding;

* Government grants are, on average, the largest single funding source among surveyed organizations at 30 percent, followed by program and service revenue (24 percent), individual contributions (8 percent), and foundation support (6 percent). Given the transitions being made in Washington, D.C., organizations long dependent on government support might be pushed toward seeking revenue from other sources, said Jenna Jameson, public relations manager; and,

* While one in three (33 percent) of respondents believe that growth will be good for morale, over half (51 percent) believe that growth will have a mixed or negative impact on morale. As offices expand with larger spaces and more locations, the organizations that are best at keeping organizational culture in mind will be the most successful in expansion, Morrow opined.

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