Operating Reserves Drop, Inflation And Salaries Cited
Operating Reserves Drop, Inflation And Salaries Cited

Nearly three-quarters of nonprofit executives polled (72%) reported having more than four months of operating reserves on hand during 2022, down from 81% in 2021. That is even after 76% of those polled reported an increase in revenue during the most recent fiscal year.

To mitigate the impacts of inflation, 65% are increasing wages and salaries, 54% are pursuing operational efficiencies, and 52% are increasing fundraising.

Those are some of the results of the new BDO’s annual Nonprofit Standards benchmarking survey. The survey was fielded during this past summer. It explores key trends impacting nonprofits and includes five subsector-specific data.

“The massive inflation we’ve seen in 2022, along with the possibility of an economic downturn, has put nonprofit leaders in an environment where quick and decisive action is needed to ensure vital programs and organizational infrastructure remains funded,” said Andrea Espinola Wilson, partner and co-leader of BDO’s Nonprofit & Education practice. “With nonprofit leaders expanding program offerings, increasing employee compensation and diversifying revenue streams, we’re clearly seeing an industry preparing to provide great service in what may be a time of increasing need.”

Nonprofit leaders are pursuing a suite of strategies to diversify their revenue streams during the next 12 months, including tapping new donors (64%), expanding program areas (38%) and, diversifying their investment portfolios (25%).

Talent acquisition and retention are high on the managers’ list of priorities, with 39% citing it as their top challenge outside of budget constraints, followed by meeting increased demand (22%) and increased competition for funding (12%). To amplify employee retention and recruitment, 78% are increasing employee compensation, 47% are updating employee benefits, 46% are updating or introducing employee training and development programs and 43% are updating or introducing flexible work policies.

The survey includes separate breakout reports including health and human services (HHS) organizations, higher education organizations, specific grantmakers, public charities and organizations with less than $25 million in annual revenue. 

Top findings from subsectors include:

* Health and Human Services (HHS): With 74% of managers reporting an increase in revenue and 54% expanding the scope of organizational mission, HHS organizations are scaling up despite a challenging economic environment. Many cite staffing as the biggest compounding challenge to their success — with 58% listing staff retention and employee morale/organizational culture as a top issue.

* Higher Education: Higher education organizations rely on student enrollment, as tuition comprises on average nearly 60% of institution funding. Leaders’ top three priorities for the next 12 months are improving student retention and enrollment (81%), seeking new sources of revenue (74%) and improving staff retention and recruitment (55%).

* Grantmakers: More than three-quarters (77%) of grantmakers have expanded the scope of their missions during the past year, and of these, half did so to evolve with the changing needs of their grantees. Meeting increased levels of demand has risen to the top of grantmakers’ list of challenges outside of budget constraints.

* Public Charities: Some funders are seeking more information to justify their contributions: 53% of public charities say donors requested more information about board and staff demographics in the past year.

* Midrange Organizations: Midrange and smaller nonprofits have fewer resources than their larger counterparts to navigate economic turmoil, and 74% rank the search for new sources of revenue as a top priority for the next 12 months.