56% of Nonprofits Can’t Meet Demand

The economic recovery is not offering signs of relief for the nonprofit sector, and many organizations are examining new models of funding, according the results of the Nonprofit Finance Fund’s 2014 State of the Nonprofit Sector Survey. Leaders from more than 5,000 nonprofits nationwide participated in this sixth annual survey.

Many organizations have daunting financial situations, and respondents said they are looking at new ways to secure the future of their organizations for the benefit of the people they serve.  The Bank of America Charitable Foundation and the Ford Foundation provided financial support for the survey.

The economic recovery is leaving behind many nonprofits and communities in need:

  • 80 percent of respondents reported an increase in demand for services, the 6th straight year of increased demand;
  • 56 percent were unable to meet demand in 2013 — the highest reported in the survey’s history; and,
  • Only 11 percent expect 2014 to be easier than 2013 for the people they serve.

“Americans rely on nonprofits for food shelter, education, healthcare and other necessities, and everyone has a stake in strengthening this social infrastructure,” said Antony Bugg-Levine, CEO of Nonprofit Finance Fund. “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

The funding landscape is changing for many nonprofits. Of respondents who receive government funding, nearly half have seen support decline during the past five years. Nonprofits are working to bring in new money; in the next 12 months:

  • 31 percent will change the main ways in which they raise and spend money;
  • 26 percent will pursue an earned income venture; and,
  • 20percent will seek funding other than grants & contracts, such as loans or other investments.

“Today’s environment requires creative problem-solving and good communication with funders and partners,” said Robert Chávez, chief executive officer of Urban Corps of San Diego County, which provides a high school education and green job training to young adults. “As a conservation corps, we have always relied on a fee-for-service program model to fund job training projects. Now, we are diversifying our services and exploring new income-generating partnerships in order to supplement at-risk funding, become fully self-sufficient, and ultimately better serve youth.”

Some 41 percent of respondents selected “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55 percent) have three months or less cash-on-hand;
  • 28 percent ended fiscal 2013 fiscal with a deficit; and,
  • Just 9 percent can have an open dialogue with funders about developing reserves for operating needs, and only 6 percent regarding developing reserves for long-term facility needs.

“The closer a system gets to failure, the harder it becomes to devote scarce resources toward building a better future,” said Bugg-Levine. “The nonprofit sector’s greatest asset is tenacious, creative, smart leaders who, despite significant challenges and with the right support, have the capacity to lead the United States into a new era of civic and social greatness.”

Nonprofits are taking wide-ranging steps to survive and succeed. During the past 12 months:

  • 49 percent collaborated with another organization to improve or increase services;
  • 48 percent invested money or time in professional development;
  • 40 percent upgraded hardware or software to improve organizational efficiency; and,
  • 39 percent conducted long-term strategic or financial planning.

For the first time, the annual survey delved into impact measurement, a core component of some emerging funding models such as pay-for-success. Respondents said that more than 70 percent of their funders requested impact or program metrics and 77 percent of respondents agreed that the metrics funders ask for are helpful in assessing impact. Only 1 percent reported that funders always cover the costs of impact measurement and 71 percent said costs were rarely or never covered.