Top 10 nonprofit challenges in spite of recovering economy
By Erica Crenshaw In Strategic Finance Posted September 17, 2015 0 Comments

A study this year by the Nonprofit Finance Fund surprisingly reveals challenges nonprofits still face in spite of the distance we’ve gained from The Great Recession nearly six years ago.

Detroit, in particular, signals this contradiction between a recovering financial climate and nonprofits persisting under operational strain. While the city of Detroit emerged from a bankruptcy last December and hope has managed to resurface with its financial burden decreasing, most organizations are hardly the picture of health, according to Mariam Noland, president of the Community Foundation for Southeast Michigan.

In Louisiana, where Execute Now! is based, nonprofits also have their share of challenges, according to a report produced by the Louisiana Association of Nonprofit Organizations (LANO). Among the top five hurdles these nonprofits experience are 1) increased demand for services in the midst of limited resources; 2) uncompensated mandates (i.e. state and government grants don’t cover 100% of cost for services so fundraising must bridge the gap); 3) for-profit competition from organizations that have access to capital, technology and ability to lobby; 4) state budget cuts in health and human service areas; and 5) random or contradictory tax policies that enforce zero or limited tax exemptions for nonprofits.

More than 5,400 nonprofits responded to a Nonprofit Finance Fund survey this year by selecting up to three areas where they continue to experience challenges.

Here are the top 10 challenges nonprofits reported they are facing today:

  1. Financial sustainability (32%)
  2. Staff retention/payroll (25%)
  3. Funding that covers full costs (19%)
  4. Unrestricted revenue (16%)
  5. Community engagement (13%)
  6. Cuts in government funding (13%)
  7. Managing or pursuing growth (13%)
  8. Meeting demand for services (13%)
  9. Not enough staff (12%)
  10. Developing cash reserves (12%)

Recovering economy doesn’t correct persistent challenges

More than half the nonprofits in this survey reported they couldn’t meet the needs of the community members seeking their services—the third straight year the number has topped 50 percent in the study.

For example, the Greater Fox Cities Area Habitat for Humanity in Wisconsin encountered 225 families seeking a new home last year. While this is down from the prior year’s 300 requests, the agency can build only 15 homes per year. In short, a recovering economy doesn’t mean fully recovered. Nonprofits still face high demands for services and greater demands for internal financial stability.

Survey sponsor and president of Bank of America Charitable Foundation Kerry Sullivan asserts, “Nonprofits have done an amazing job navigating through a really tough time. But right now, when a lot of other parts of the economy are starting to feel more hopeful, they are still stuck in the same place.”

Rising up to meet the challenge

In the face of relentless challenges, nonprofits have reported new strategies to meet the increasing demand, according to the survey results. A little over half of respondents reported engaging in collaborative efforts to increase services. Additionally more than 40 percent plan to conduct long-term strategic or financial planning in the next year.

Other more hopeful findings this year include:

  • 24 percent ended fiscal year 2014 with a budget deficit—the smallest in the survey’s history.
  • 44 percent hired staff members for new positions.
  • 74 percent are collecting data on impact.
  • 35 percent identified affordable housing as the most critical need in their communities.

Finances on the forefront

It bears repeating that six of the 10 challenges highlighted in this survey are rooted in financial issues. In a related study by the Nonprofit Finance Fund in 2014, 41 percent of nonprofits named “achieving long-term financial stability” as a top challenge and more than 55 percent of nonprofits have three months’ operating expenses or less cash-on-hand.

These are alarming statistics even in improving economic times. More importantly, they are a call to action for leaders to meet with the board and its finance committee to determine immediate financial steps toward stability. Consider enlisting a financial expert on your board; consult with financial consultants on intermediate and long-term cash flow goals, or contact us at Execute Now! so we can assist you with financial planning and analysis services. In other words, rather than delegate financials to the “back-of-the-house” administratively, make your financials an integral part of your strategic initiatives at the front-of-the-house.

By Erica McGeachy Crenshaw, CEO of Execute Now!

Note: Due to the overwhelming response from our readers, we have resumed our schedule of nonprofit finance posts. You can expect to hear from us on a regular basis.

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